The nomenclature around economic philosophies can be confusing. On the right, there are variations on the theme of free markets. Adam Smith was the progenitor of classic liberalism which advocated for largely unencumbered markets as the principal means of producing goods and services. Leftists, on the other hand, will debate the difference between communism and socialism, and, drilling down, between old-style socialism and democratic socialism. Karl Marx is our chief progenitor here, advocating for a collectivist means of production run by a collectivist authority. Obviously, this short paragraph does not adequately explain The Wealth of Nations and Das Capital.
After World War II, in contrapose to the postwar emergence of interventionist Keynesianism, a resurgence of classic liberalism was relabeled as neo-liberalism. Its practitioners were free-market advocates with a strong bent toward a minimalist government role in the economy. However, in American political parlance, liberal – sans neo – came to define advocates of significant government economic intervention, this in high contrast to either classical or neo-liberalism.
This created unavoidable confusion. Liberals and neo-liberals as opposing forces is unworkable. Today, hard core liberals –those of the socialist lite variety –tend to self-identify as progressives. Neo-liberals can be libertarians or economic conservatives. All of these monikers are further complicated with non-economic overlays, such as an environmental influence on progressivism or a religious overtone to conservatism. This just adds to the confusion.
There are millions of videos on YouTube. One can inform (or misinform) oneself on any subject imaginable. Unsurprisingly, there is no shortage on the confluence of politics and economics. I recently watched three videos on the perils of neo-liberalism; two were presentations by billionaires whose financial status, presumably, was supposed to give their opinions weight. One described corporate activity solely focused on the pursuit of profit as sociopathy.
These YouTube pundits attacked market-oriented economics professing that the world’s hardships were due to unfettered capitalism. They attacked corporations as malevolent because they only care about profit, and in the pursuit thereof, they behave in an anti-social fashion to the detriment of all. Environmental degradation, income maldistribution, social alienation, disease and pestilence are all attributable to market economies.
Even acknowledging bad actors, these protestations seem to me over the top. The folks at JUUL may insist that they were simply offering a safer substitute for cigarettes but, given the flavoring and marketing of their e-cigarettes, one could call them bad actors. They knew, or should have known, that their product was more harmful than beneficial. Other market activities that are also detrimental to society. These may attributable to unconscionable practices, out-and-out fraud, misunderstood consequences or to criminal disregard for social externalities.
Nevertheless, marketeers overwhelmingly just want to place goods and services on the market and make a living. If they make a fabulous living, so much the better. And if they fail, it is largely on them. Claims to the contrary notwithstanding, markets are not driven by a universal principal of greed. There are ethics and laws which govern market activity. That they sometime fail says more about legislators than marketeers.
The problem with ideologues is that they too often see an all-or-nothing world. While markets are not perfect, it is arguable that they produce the most good for the most people. When a company does business – almost any kind of business – it produces something of value and generates jobs for the less entrepreneurially inclined. The value may be minimal, like chewing gum, or it may be world changing, like smart phones. It doesn’t matter. If there is true harm, there are grounds for regulation or prohibition. Otherwise, no harm, no foul.
History supports the beneficial nature of markets. The various and varied attempts at communal economy over the last century have largely been disastrous. Consider the flow of immigration over those years. If you want to know how well a society is doing, go to the border and see which way the guns are pointed. The opening of China to free markets and entrepreneurial activity pulled over a billion people out of poverty in a score of years. Wow!
You could argue that adding a billion Chinese workers in the world labor pool led to an increased levels of income maldistribution. Such a huge increase in the supply of labor lowered its cost, very much to the detriment of workers in more developed countries. Also, China added hugely to consumer demand. Add the enormous technical advancements of the last half-century and you have a perfect storm: too much labor undermines wage growth while greater consumer demand broadens the market. The result: minimal progress for workers and numerous investment opportunities for investors.
This was not a plot. No one conspired to bring China out of its self-imposed isolation to undermine workers and benefit capitalists. A better explanation is that, after a miserable half-century, the theretofore pig-headed Chinese leadership woke up to realize that they lived in poverty while other countries did not. Their ham-handed, top-down direction of their economy was not an exemplar of a glorious people’s republic but rather a proverbial economic basket case. They made a U-turn – while pathetically pretending not to – and as they say, the rest is history.
Demands to formally add social criteria and broader participation in corporate governance sound good but it makes the corporation into something never intended. Business inherently does good by legally providing people with the goods and services they need and/or want. That is enough to justify their existence.
Social good is difficult to define and harder to administer. Egregious and harmful behavior should not be sanctioned. However, establishing uniform requirements for social good for business would undermine the beneficial functioning of a market economy. We can argue the proper magnitude of the social welfare function of government, but social welfare is a government function and a reasonable tax on wealth for that purpose is acceptable. To do so, however, you need wealth. The market is the goose that lays the golden eggs. To maximize prosperity, rule number one is: don’t kill the goose.