The Capitalism & Morality Debate

The decade of the 1980s has proved to be an ideological watershed. It has been marked by a huge resurgence of the power and efficacy of the capitalist market system and a corresponding collapse of confidence in the capacity of socialist “command economies.” This loss of confidence in collectivism is the culmination of many decades of trial and misfortune. The truth is that, during the twentieth century, large parts of the world have given the collectivist alternative to capitalism a long, thorough, and staggeringly costly trial, and it seems to have failed absolutely everywhere. It was during the 1980s that this realization dawned even in the quarters most reluctant to admit it—among the rulers of the socialist style states. Many of them are turning back—in despondency, almost in despair—to the despised market disciplines they had rejected.

Meanwhile the capitalist world is racing ahead and is creating wealth on a scale never before dreamed of. It is clear that capitalism, being a natural force rather than a contrived ideology, springing from instincts deep in our human natures, is modifying itself all the time, and we cannot foresee how it will evolve over the next century. But I am willing to predict, as a result of our experiences in this one, that never again will any considerable body of opinion seriously doubt its wealth-producing capacity or seek to replace it with something fundamentally different. We are near the end of an historical epoch in which capitalism has survived the collectivist assault and is now firmly reestablished as the world's primary way of conducting its economic business.

So where does this leave us? It leaves us, I suggest, with a considerable moral dilemma. I can state the dilemma in one sentence: how do we give a moral dimension to this triumphant reassertion of capitalism? For one thing we know: whereas wealth creation is essential to men's well-being, especially in a world where population is expanding so rapidly, it cannot in itself make men and women happy. We are creatures of the spirit as well as of the flesh, and we cannot be at ease with ourselves unless we feel we are fulfilling, however vaguely or imperfectly, a moral purpose. It is in this respect that capitalism, as such, is inadequate.

It is not that capitalism is immoral. Clergymen who insist that it is and preach against it are themselves confused, as were their predecessors a hundred years ago who insisted that any form of socialism was immoral. One can be a good Christian and a capitalist, just as one can be a good Christian and practice collectivism.

The trouble with capitalism is quite otherwise. It lies in its moral neutrality, its indifference to the notion of moral choices. Capitalism and the market system which gives it its efficiency and its power is singleminded in its thrust—that is why it is so productive. It is blind to all other factors: blind to class, race, and color, to religion and sex, to nationality and creed, to good and evil. It is materialist, impersonal, and non-human. It responds with great speed and accuracy to all the market factors. In a way it is like a marvelous natural computer. But it cannot make distinctions for which it is not programmed. It does not and cannot possess a soul and it therefore lacks a moral inclination one way or the other.

Indeed it is precisely because capitalism is morally indifferent—and so productive of great miseries as well as great blessings—that many idealists early in the nineteenth century saw it as evil, rejected it entirely, and sought to replace it. We have come to the end of that line of argument. We have discovered there is no effective substitute for the market. We have to accept capitalism as the primary means whereby wealth is produced and begin the process of moralization within its terms of reference. I say “begin,” but in a sense we have been doing it for two hundred years—by factories acts, mines acts, by monopoly and fair trading legislation, and by all the countless laws we devise to restrict ways in which the market system can be distorted by man's cupidity.

But these are merely negative attempts to correct the excesses of capitalism. They do not in themselves give capitalism a positive moral purpose. That is a quite different and much more difficult matter. The moment you start trying to give capitalism a moral purpose, you risk interfering with the basic market mechanism which provides its wealth creating power. If, for instance, you try to use capitalism to promote greater equality of wealth by imposing on it a steeply progressive, redistributive system of taxation, you frustrate the way in which it rewards its chief dynamic force, the acquisitive impulse, and you are liable to end by making everyone poorer. Or if, to take another example, you try to redistribute power within capitalism by balancing managerial authority by trade union privileges, you either choke the entrepreneurial spirit or you eliminate profits—the system's lifeblood—or, as a rule, you do both, and so again you end by making everyone poorer.

Almost all efforts to provide capitalism itself with a positive moral purpose run into the same difficulty. Great Britain, between 1945 and the end of the 1970s, was a classic case where repeated and often ingenious attempts were made to cudgel capitalism into a system of national redistribution of wealth. It was part socialism, part corporatism, and wholly inefficient. It was baptized by the moral sounding name of “the mixed economy.” In fact, by the end of the 1970s, it had come to resemble an ancient piece of do it yourself machinery, constructed by amateurs, held together by adhesive tape and emitting old fashioned steam from every joint. The British economy had become one of the least efficient and productive in the Western world. In 1979 Mrs. Thatcher and her government began the return to true capitalism, but even after a decade of common sense reforms and rapid improvements in productivity, we calculate it will still take us another ten years or so to catch up with Germany and France, while the United States and Japan are still further beyond our reach. That is the price of trying to make capitalism do something which is not in its nature to do—promote equality. The price is paid in the shape of reduced national wealth and income—lower general living standards, inadequate health care, a run down transport system, impoverished social services, underfunded schools. These results have been repeated, in varying degrees, everywhere else in the world where attempts to invest capitalism with positive moral functions have been made. We have to accept that the market system, while exceedingly robust when left to itself, rapidly becomes sick and comatose once you try to force it to do things contrary to its nature. The more you interfere with its mechanism by imposing moral objectives the less efficiently it works. Indeed, under a sufficient weight of moral obligation, it will seize up altogether.

How do we escape from this difficulty? How can we practice capitalism, with its unrivaled capacity to produce wealth, within the framework of a society that recognizes moral objectives? To put it another way: is it possible to harness the power of market capitalism to moral purposes without destroying its dynamism? That is the real, practical question that faces humanity. And I often wish our Christian theologians would address themselves to it, instead of peremptorily dismissing capitalism as intrinsically evil, as so many of them thoughtlessly do.

I do not pretend the problem is easily solved. On the other hand, I think it is defeatist to regard it as inherently insoluble. It is a mistake to try to turn capitalism itself into a moral animal. But I think it is possible to run it in tandem with public policies that make use of its energy while steering it in a moral direction. Let me indicate a number of ways in which I believe this can happen.

First, and in some ways the most important, is to provide the capitalist economy with an overall legal framework which has a moral basis. This can only be done if we accept that a fundamental object of the just society is to establish, so far as is humanly possible, absolute equality before the law. Equality of wealth is a utopian fantasy whose hopeless pursuit usually leads to tyranny. But equality before the law is a reasonable objective, whose attainment—albeit in an imperfect form—is well within the reach of civilized modern societies. Moreover, this form of equality responds to a strong human need: for whereas few of us really want equality of possessions, or believe it possible, all of us want fairness. The notion of a fair society is an attractive concept, and one toward which progress can undoubtedly be made. Moreover equality before the law is a necessary adjunct to the competitive nature of capitalism: the end result cannot be equality, but from start to finish the rules must apply equally to all.

What do we mean by equality before the law? We mean that the law must make no distinction of birth or caste, race or color, sex or tribe, wealth or poverty. It must hold the scales of justice blindfolded. In a curiously paradoxical way, the capitalist system similarly makes no distinction about the nature of men and women. Hence for the law so to distinguish is a gross interference with the market mechanism and makes it less efficient. Equality before the law reinforces the natural power of capitalism, so that in this case moral purpose and wealth creation go hand in hand. Inequality before the law takes many forms, some of them grotesque, as in the Republic of South Africa or the Soviet Union, some more subtle. Even in advanced Western societies like the United States, where the principle is well understood and established, the ability to buy more law than your neighbor is a ubiquitous source of inequality. In no society that I know is full equality before the law established in practice, and I do not say that it can be realized perfectly and overnight anywhere. But it is one form of equality that can be broadly attained without destructive side effects, and systematic progress toward it is an essential object of any society that wishes to place capitalism in a context of justice.

Another way to combine capitalism with moral purpose is for society to endorse the related but broader concept of equality of opportunity. It is one of the miracles of the human condition that all of us, however humble, possess talents of one kind or another, waiting to be of service. The notion that all of us have something to contribute is God-given and stands at the heart of the Judeo-Christian tradition. The range of talents is as infinite as human variety itself, and the society that is swiftest to identify them in each, and put them to use, will certainly be the most efficient (as well as just). Here again, capitalism and justice pursue the same ends, for capitalism thrives on meritocracy—one of the prime functions of the market is to identify and reward objective merit—and it creates wealth most rapidly when all obstacles to equality of opportunity, social and historic as well as purely legal, are removed. This aspect of equality is a vital element in the moral legitimation of capitalism, for an economic structure in which every man and woman, in theory at least, can progress from the lowest to the highest place cannot be held to be intrinsically unjust.

I say “in theory.” What about in practice? It is unrealistic to talk of equality of opportunity without taking drastic measures to make high-quality education generally available to those who can profit from it. I know that in practice we are not going to get a society where all will be able to benefit from the standards of the best schools and colleges. To begin with, throughout human history the most gifted teachers have always been in limited supply—there are never enough to go around. In any case, the culture and habits of industry, which parents transmit to their children, make absolute equality of opportunity unattainable. But it is one thing to concede the difficulties, quite another to accept the present system of educational inequality, which exists to some degree in every country in the world. There is no single way, in my view, more likely to make capitalism morally acceptable, to anchor its functions in justice, than by giving the poor access, by merit, to high quality education of every kind and at every stage. And it is implicit in this objective that we identify merit, of every variety, at the earliest possible age—another respect in which we tend to be woefully inept.

Of course, to educate the poor, according to aptitude, to the highest standards is enormously expensive. But it is the great merit of capitalism that it does produce wealth in immense quantities for such necessary purposes; and the more people we educate efficiently, the more wealth the system will produce. The matter is increasingly urgent for, as capitalism advances itself, it demands ever more refined skills at each level. If training in them is not available for all who can benefit, inequalities—both within societies and between them—will increase instead of diminish, and the moral credentials of the system will inevitably be subjected to growing challenge. We have, in short, to educate ourselves into Justice, and to do so with all deliberate speed.

But we must not stop at access to education. We must see to it that there is more readiness of access to the capitalist system itself. I believe that the notion of “democratic capitalism” is a genuine one, and that its realization, to some degree at least, is within our grasp. There are many ways in which it can be brought about. Some are old. Some we have only recently discovered. Some are yet to be devised.

In the last half-century and more, we have found that to take an industry into public ownership in no way democratizes it—quite the contrary. Nationalization, whether in the form of a monolithic public corporation, as in the old British system, or through so called “workers' control,” as in Yugoslavia, for example, merely puts the business firmly into the hands of bureaucratic or union elites, or indeed both. But it is now possible, as has been found in Britain and elsewhere, to float public corporations so that they become the property of millions of small stockholders.

Let us not deceive ourselves that this conveys control of them to the masses. But it does spread ownership widely, and it does introduce an element of mass financial participation in the system that is new and healthy. It gives millions of humble, ordinary people a sense that they are no longer entirely victims of the system: that they act, as well as are acted upon; that to some small degree they have a stake in society. It is a source of pride, of reassurance, even of security, and it is thus morally significant.

Democratic capitalism also lends itself to the old but unrealized idea of co-ownership by giving the workforce easy entry into the purchase of stock. Over 90 percent, for instance, of those who work for the recently privatized British corporation British Telecom now hold stock in the firm—thus bridging the destructive and needless chasm that separates owners and workers and that promotes class warfare. In any great capitalist enterprise, the community of interest between those who own, run, and work for it is, or ought to be, far greater than any conflict of interest. Access of workers to stock is the surest way of demonstrating this fundamental truth, which is often obscured by political sloganeering. This is particularly important in industries where the work is hard and dangerous and the profits high, such as mining and offshore oil extraction, to give two obvious examples. Democratic capitalism, and especially the worker stock ownership aspect of it, serves to refute one of the gravest charges against capitalist practice—that it is, by its very nature, exploitative.

Stock ownership is not, however, the only or even the best way in which the notion of democratic capitalism can be pursued. One of the most important but least understood disadvantages of the so called “mixed economy” is that, in its inevitable drift to corporatism, it involves tripartite deals between government, labor unions, and large scale capital. Such deals invariably leave out small businesses. In Britain, for instance, it is only since we have begun to dismantle mixed economy corporatism that the needs of small businesses, and equally important, of those wishing to start them, have played any part in the formation of government policy.

Why have we been so remiss? Now that most of the world is necessarily turning its back on the soil, to start one's own business has replaced that fundamental human urge to farm one's own land—it is an expression of the natural creativity in man, and as such a profoundly moral impulse. Sensible, practical assistance in helping people to set up their own businesses, and to ensure a climate of fairness in which they operate, is the best way to promote, at one and the same time, equality of opportunity, democratic capitalism, and, not least, the efficiency and acceptability of the system as a whole. There is almost invariably a strong correlation between the number of small business starts and soundly based economic expansion. So here again the interests of justice and the process of wealth creation coincide.

Popular access to capitalism at a national level has its international counterpart in access to markets. The vigorous promotion of free trade is an important way in which capitalism is legitimized morally. Protectionism in any form tends to undermine capitalist efficiency by creating privileged industries, and it is unacceptable morally because it deprives the consumer of the full fruits of the market. It always appears to have advantages for new, small, and weak economies—or for old established ones meeting new and ruthless competition. But in the long term, and often in the short term too, these advantages are greatly outweighed by the drawbacks. Equally objectionable are barter deals between states, or deals between states and big international corporations. All these attempts to escape the rigors of competition invariably produce corruption and fraud and bring out the worst aspects both of big government and of capitalism itself. One might put it this way: international free trade is the global version of equality of opportunity.

But just as equal opportunities within a society are unlikely to become reality without general access to high quality education, so free trade will not in practice be generally accepted, especially among the poorer countries, until the huge discrepancies between nations in technical and commercial skills are diminished. I do not think that the normal workings of the international market will be recognized as just and reasonable until we narrow this gap, so much more important in the long run than any more obvious gap in living standards or financial resources. Yet here, perhaps, is the best way in which richer nations can effectively help the poorer ones.

Old-style aid is now discredited, and I think rightly so, for certainly there are few more foolish things than for a rich nation to salve its conscience by transferring cash to the government of a poor one, thus as a rule keeping an inefficient and unpopular tyranny in power. But it is another matter to use our resources to train the disadvantaged masses of the Third World—and indeed the emerging ex-communist world too—in the skills of market capitalism. By widening the availability of such skills, we do many things simultaneously: we benefit the poorer countries by enabling them to compete; we benefit ourselves by making it possible for them to open their markets to us; we strengthen the system by giving it universality as well as fairness; and consumers everywhere find goods cheaper as competition increases. Here again, the process of placing capitalism in a moral context has the additional advantage of adding to its wealth-creating power. To sum up my case: doing the right thing morally usually proves to be commercially the right thing to do as well.

However, I willingly concede that there is an important flaw in my argument. And it applies whether one looks at individual societies or at the global community—within nations and between them. However thoroughly one applies the principle of equality before the law, however ingeniously one provides equality of opportunity and universal access to high quality education, bitter experience seems to show that a great many people remain in deprivation, misery, and hopelessness. It is not enough to provide individuals with an exit from this underclass. Its very existence, as a class, perpetuating itself from generation to generation, is or at least seems to be a categorical indictment of the capitalist market system itself.

In fact it does not truly reflect upon the market. The market can be made fair—to give it moral legitimacy it must be made fair—but what it cannot be made to do, at least not without wrecking it, is to discriminate in favor of failure. And we have to face the fact that many human beings, in any society, will fall however fair the rules and however wide the opportunities. There is overwhelming evidence that market capitalism can conquer mass want and create a very general affluence anywhere in the world. What we now have to demonstrate is that the societies in which capitalism is the energizing force can cope with the minority problem of failure. It is, in my judgment, the biggest single task our societies face today: a problem which is at one and the same time moral, economic, and political.

It is moral because we cannot accept, on a permanent basis, the exclusion of perhaps a fifth of society from a life of modest decency. Earlier ages had to reconcile themselves to permanent mass poverty. We know a solution can be found, and we have an inescapable moral obligation to find it.

It is economic because it is waste on a colossal scale. Often up to 50 percent of budgets are absorbed by coping with poverty. And it is not just material waste but waste of minds and hearts.

It is political because the percentage involved is too small to effect change through the democratic process. Thus, there is an inherent tendency to resort to violence, often with racial overtones—and a violence which possesses a kind of moral authority all its own.

The solutions tried up to now have been collectivist ones, so they have all failed. I believe we must now turn to entrepreneurial solutions and seek to use the problem solving mechanism of market capitalism, which has never failed us yet, to provide the answers.

The need is urgent, because the problem is already reproducing itself at the international level. It is right, as I have argued, to press steadily for the expansion of free trade, and for the richer nations to finance training programs and other devices to make such expansion fair and profitable to all. The majority of the global population can be progressively drawn into such a system.

But it would be misleading to suggest that all the nations are at present eligible. Indeed an underclass of nations, mainly but not exclusively in Africa, is developing too. What we observe in large parts of Africa is what might be called the Haiti Syndrome: entities nominally classified as states which have virtually fallen out of the international economy and which seemingly cannot provide for their citizens elementary justice or allow them to provide for themselves the basic necessities of life. In many cases, the miseries of these underclass nations are envenomed by civil war and frontier disputes among themselves. As they are at present organized and governed, there is nothing that capitalism can do for them—and socialism, to which most have resorted, merely compounds their problems. Indeed such underclass states seem inevitably to attract the worst exponents both of capitalism at its most unscrupulous and socialism at its most destructive. Where lies the remedy? Indeed, is there a remedy?

Certainly there is no obvious remedy within the common assumptions of the late twentieth century that all states, whatever their origins and nature, are equally sovereign. In the nineteenth century, the existence of such failed societies, with abysmally low and falling living standards exacerbated by chronic violence, would have attracted the attentions of one or other of the colonial powers. Sooner or later a colonial power would have moved in, from moral motives as well as from hope of commercial and political gain. That would be inconceivable now.

Or would it? Has not the failure of decolonization, in some areas at least, been as spectacular and tragic as the general failure of collectivism? And is it unthinkable to revive the notion of national trusteeship, once so important a part of the League of Nations' work in the 1920s and 1930s? And if trusteeship is a valid concept, worth discussing in the international context, is it, or something like it, a useful idea to mull over in the context of the intractable problem of the internal underclass?

What I am suggesting is that in exploring the future potentialities of the capitalist market system and in devising ways in which society can consolidate its moral acceptability, we should keep an open mind to fresh ideas. We are at the end of one ideological era, the era in which collectivism was tried and found wanting. One thing history surely teaches is that when old ideas die, others rush in to fill the vacuum. For men and women need ideas as much as they need food and drink. If sensible and creative ideas are not forthcoming, we can be certain that dangerous and destructive ones will emerge to exert their spell. It is essential that those of us whose roots are still within the Judeo-Christian system of ethics, who value freedom, who strive for the just society, and who recognize the enormous productive potential of market capitalism should be fertile in ideas in the coming battle for minds. For if we get the ideas right, the opportunities for mankind in the next century are almost without limit.

Paul Johnson is a British historian whose books include Modern Times and Intellectuals. He delivered this speech at a policy conference at the American Enterprise Institute.

This painting is in the Public Domain.