Tuesday, February 21, 2006

Morality and Enterprise: a View from Forbes

“A Different Kind of Invisible Hand: profits alone don’t determine success”

The headline grabbed my attention, so I followed the source to find a report on
Forbes publisher, Rich Karlgaard (20 Feb), speaking on “AlwaysOn: the insiders network” which puts a case for a moral basis to capitalism. By moral he seems to be talking about Christian morality and it seems to be semi-religious meeting, judging by the evangelical bio-confessions of other speakers:


Rich Karlgaard says:

Capitalism is a wonderful system. But it’s a system that is very much—as Churchill said about democracy—it’s the worst system that anybody could come up with except for all others.

The angriest mail that I get in response to columns that I write at Forbes, other than recommending tech stocks at the top of the bubble, are not from people who are anti-capitalists and left of center. I mean Forbes is a pro-capitalist, right-of-center magazine. They are not from people who are anti-capitalist and left of center. They are actually from a kind of Ayn Rand libertarian type whenever I write a column talking about the importance of morality in capitalism and how the two work together. A free enterprise will perish in two generations if it doesn’t have the underlying foundation of morality. That isn’t true [they say], capitalism is morally sufficient on to itself. And they never make the argument. They say because Ayn Rand said so.

It is just sort of an amazing little cult out there. But there are a lot of kind of what I would call soft libertarians out there who kind of believe the same. And I think the mainstream media is guilty of portraying capitalism as this kind of individual pursuit of greed and somehow it all works together. That is a complete misinterpretation of what Adam Smith said.

Adam Smith wrote lengthily about the necessity for capitalism existing on a moral basis.”

Well, it’s not quite a rebuttal of the usual reference to the invisible hand, but it makes a valid point about Adam Smith and his moral foundations to behaviour, including in markets and clearly rejects those notions, fed by Hollywood about ‘greed being good’, which are totally at variance to Smith’s approach, though often attributed to him.

Of course, Adam Smith never “wrote lengthily about the necessity for capitalism existing” on any basis, let alone on a ‘moral basis’. He knew nothing of the phenomenon of 19th-century capitalism; he wrote about 18th-century commercial markets. People who assert he did write about capitalism, including scholarly academics, are back-projecting phenomena of which Smith knew nothing.

Of interest, however, in Rich Karlgaard’s article is the following extract, further down the page:

Very interesting to see what Rick Warren is doing now in Africa; now that he’s achieved about everything that he can with saddleback and his purpose-driven mission in the United States, he has turned his attention to Africa, where there is this intractable poverty. His test case is Rwanda, and his plan is to bring together government, business, and faith-based organizations to bear on these deep, deep problems of poverty. And it won’t work without all three because all three must come together on this. I was talking to Rick recently and I love what he said about this notion of free enterprise and capitalism: 'That we were created in God’s image; we were created by a creator; ergo we were born to create.'

And that is what the free enterprise system allows us to do. He talks about not just giving men fish and not just teaching them to fish. Because in today’s modern economy we need to teach them how to process fish; distribute fish; get fish into the supply chain; sell fish. He says people in Rwanda, even after all of the carnage of the 90s are actually very self sufficient. The problem is they are all doing the same thing. You drive down a road and everybody is selling the same agricultural produce. So you’ve gotten to the level where you have a sustaining economy at some kind of a level, of subsistence economy—there’s the word—but not anything that can grow and improve people’s lives.”

Millions sent in aid or grants to African governments by rich country governments are usually wasted (and are re-routed to private accounts in rich country banks). Infra-structure investments by NGOs and charities (not the funds diverted into political campaigns in western countries, which do not build a single useful thing in poorer countries) are partially useful but not entirely, given the corruption, state interference and lack of markets in Africa.

Africa needs domestic markets based on the division of labour from ever deepening as markets for basic items grow. These require peace and institutional changes at the grass roots, the eradication of barriers to their trade, including ridiculous regulations, red tape and licensing, let alone criminality and a corrupt justice system. The point about Rwanda is well put and taken.

It might take a while longer to work on Rich Karlgaard’s partially correct views on Adam Smith.


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