ethics of capitalism

Business Ethics IMBA 2013

Lecture 6 Ethics of capitalism

Prof. dr Ronald Jeurissen

Goals for Today

• Defining capitalism• Overview of historical developments in

capitalism• Moral justifications and criticisms of

capitalism• Alternatives to capitalism• Fixing capitalism

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Capitalism defined

• “An economic system in which the major portion of production and distribution is in private hands, operating under what is termed a profit or market system” (Shaw & Barry)

• Emerged in Western Europe in the 18th century

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Capitalism Today: Five Defining Features

1. Existence of companies (as legal entities)

2. Profit motive

3. Competition

4. Private property (capital, means of production)

5. Regulation (anti-trust, labour law, anti bribery etc.)

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Marx’s definition

• M-C-M' cycle. The M-C-M' cycle is the transformation of money (M) into commodities (C), and the change of commodities back again into money (M') of increased value.

• Using money to make more money, based on the exchange value of goods.

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Max Weber: The protestant ethic and the spirit of capitalism, 1904

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Protestant innerworldly asceticism:Calvin and the English Puritans considered the economic attitudes – thrift, diligence, sobriety, frugality, work in a calling – as Christian virtues.

Spirit of capitalism:•zeal and temperance•hard work•frugality•save and invest•time is money•profit maximization

Secularized into

Benjamin Franklin

"Remember, that time is money. He that can earn ten shillings a day by his labor, and goes abroad, or sits idle, one half of that day, though he spends but sixpence during his diversion or idleness, ought not to reckon that the only expense; he has really spent, or rather thrown away, five shillings besides.[...]Remember, that money is the prolific, generating nature. Money can beget money, and its offspring can beget more, and so on. Five shillings turned is six, turned again is seven and threepence, and so on, till it becomes a hundred pounds. The more there is of it, the more it produces every turning, so that the profits rise quicker and quicker. He that kills a breeding sow, destroys all her offspring to the thousandth generation. He that murders a crown, destroys all that it might have produced, even scores of pounds.”

7Benjamin Franklin, Advice to a Young Tradesman, Written by an Old One, 1748.

Werner Sombart: Capitalism as hedonism

Capitalism emerged from the demand for new consumer goods by a young bourgeoisie, who had an urge to resemble nobility. Sombart sets the origin of capitalism in a context of hedonism, which is interpreted as the bourgeoisie's desperate mimicry of the feudal aristocracy. The then emerging accumulative and profit-oriented system was, according to Sombart, not triggered by protestant ideologies or the introduction of an interest-based economy, as in Marx and Weber, but by extravagance, by taking pleasure in non-functional things, by trinkets and knick-knacks, which promoted a desire to have more money. This desire for more 'money' is therefore equivalent to striving for similarity with something (with nobility), but also to simultaneously depreciating and desiring something else (women), and to gaining economic power.

W. Sombart, Luxus und Kapitalismus, 1922. (Luxury and capitalism)

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A Brief History of Capitalism *

• Emerged in the Renaissance– Prior to that: guilds made products to order– Businesses were a way to make a living, no profit

motive

• 14th century, Augsburg, Germany: Anton Fugger became a weaver in 1380.

– Began collecting and selling other weavers’ products– Employed many weavers, paid them for labor– Son Jacob took over

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* Source: Moral Issues in Business (8th ed.), by W. Shaw & V. Barry, published by Wadsworth.Full article is available on the Portal

A Brief History of Capitalism

• 15th century: Grandson Jacob II built dynasty– Expanded to metals and textiles– Financed the Habsburg wars– In exchange for monopoly rights

on copper and silver– Traded the ores and bought the mines

Fugger controlled all means of production The company existed outside of family members Financial gain was pursued for its own sake Profits were measured in money, not land

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http://upload.wikimedia.org/wikipedia/commons/c/c0/Albrecht_D%C3%BCrer_080.jpg

A brief history of capitalism

• Early Western Capitalism 17th – 18th century• Industrial Capitalism 19th century• State welfare Capitalism 20th century• Shareholder Capitalism 20th – 21 st century• Global Capitalism 21st century – ?

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A Brief History of Capitalism

Early capitalism: 17th century, Mercantilism– Rise of modern states; ambitious and aggressive– Rise of the modern merchant class– Glorification of the merchant– Close unity between states and merchants– Emergence of large scale international trade– Focus on international trade surplus

Thomas Mun, ‘England’s Treasure by Forraign Trade, or the Balance of foraign Trade is the Rule of our Treasure’ (1630)

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http://www.knowledgenews.net/moxie/todaysknowledge/meet-the-robber-barons.shtml

United East India Company (VOC, 1602)

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‘Heeren 17’ (17 gentlemen)

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A Brief history of capitalism

Industrial Capitalism 19 th century– Industrial revolution– Hard-driving, visionary

entrepreneurs: “Robber Barons” (Rockefeller, Carnegie, etc)

– Opposition of capital and labour– Economic liberalism– Labour organisation, socialism– Concentration and imperialism– Stagnation (WW I; Great Depression)

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16A. Von Menzel, Das Eisenwalzwerk


Welfare capitalism: 20th century- Keynesianism, marco economic planning - Managerial capitalism- Military-Industrial-Bureaucratic complex- Marketing and the consumer culture- Decolonisation and development aid- Environmental awareness- Stagnation from the 1980’s onward- Financial and debt crisis as a result of structural

overspending

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Consumer culture

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Shareholder capitalism: 20th – 21st century– Finance driven, leverage– High risk orientation– Market for corporate control– Deregulation– Flexibilisation, outsourcing, offshoring– Increased social inequality– Popular protests, decline of social trust and cohesion

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Global capitalism: 21st century – ?•Science based innovation•Rapid industrialisation and rise to power of developing countries•Multipolar world •Global macro-economic policies•Global environmental problems

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Is Capitalism Morally Justifiable?

Three main moral justifications:• Principled: People have a fundamental right to

property (Locke) – capitalism is the natural outcome of this right

• Utilitarian: Ultimately, it works out for the greater good (Smith)

– More efficient than any other system

• Copes with man’s vices (realistic, robust)

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Market economy: The invisible hand

“He intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was not part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.”

Adam Smith, Wealth of Nations, 1776, Book IV, ii, 9

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‘Private vices, public benefits’, Mandeville (1670-1733)

“They that examine into the Nature of Man, may observe, that what renders him a Sociable Animal, consists not in his desire of Company, Good-nature, Pity, Affability, and other Graces of a fair Outside; but that his vilest and most hateful Qualities are the most necessary Accomplishments to fit him for the largest, and, according to the World, the happiest and most flourishing Societies.” (Fable of the Bees, 1724, Preface)

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Milton Friedman, ‘Free to choose’

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http://www.youtube.com/watch?v=D3N2sNnGwa4

http://www.youtube.com/watch?v=D3N2sNnGwa4

Criticisms of Capitalism

• Lingering (accelerating) inequality– Income – Opportunities / access (e.g., health care)

• Faulty assumptions about human beings– Rational– Autonomous– Acquisitive– Motivated by self-interest

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Alternative views to the self-interest paradigm• Shaftesbury, Characteristics of Men, Manners, Opinions, Times,

(1711): The human mind also contains “passion, humour, caprice, zeal, faction and a thousand other springs, which are counter to self interest”.

• Richard Cumberland, A Treatise of the laws of nature (1727): Men are lead by a principle of “benevolence”. Men in their social motions follow a path conducive to the preservation of society.

• Joseph Butler, Sermons (1726): Natural human motives fall into two categories, one “respecting self, and tending to private good”, and the other respectiving society, and tending to promote public good, the happiness of the society”.

• Ha-Joon Chang, 23 things they don’t tell you about capitalism (2010): “Indeed, if the world were full of the self-seeking individuals found in economics textbooks, it would grind to a halt because we would be spending most of our time cheating, trying to catch the cheaters, and punishing the caught”. (Thing 5).

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Criticisms of Capitalism

• Competition is faulty– Breeds oligopolies (e.g., food industry)

• Exploitation, alienation and dehumanization– Externalisation of costs

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Marx’s criticism

“The directing motive, the end and aim of capitalist production, is to extract the greatest possible amount of surplus value, and consequently to exploit labour-power to the greatest possible extent. As the number of the co-operating labourers increases, so too does their resistance to the domination of capital, and with it, the necessity for capital to overcome this resistance by counterpressure. The control exercised by the capitalist is not only a special function, due to the nature of the social labour-process, and peculiar to that process, but it is, at the same time, a function of the exploitation of a social labour-process, and is consequently rooted in the unavoidable antagonism between the exploiter and the living and labouring raw material he exploits. .“ (Marx, Capital, Vol. 1. Ch. 12)

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The paradox of choice

“Having too many choices produces psychological distress, especially when combined with regret, concern about status, adaptation, social comparison, and perhaps more important, the desire to have the best of everything – to maximize”.

(G. Schwartz, The paradox of choice: Why more is less, HarperCollins, New York, 2005, p.221.)

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Alternatives to capitalism

• Buddhist, Christian and Islamic views• Occupy movement

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Buddhism: right livelyhood

the eightfold path towards Nirvana

1 right view

2 right intention

3 right speech

4 right action

5 right livelyhood

6 right effort

7 right mindfulness

8 right concentration

Right livelyhood is the step of particular interest from an economic perspective. Right livelyhood is a way of making a living that does not harm others.

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Buddhism: right livelyhood

"To practice Right Livelihood (samyag ajiva), you have to find a way to earn your living without transgressing your ideals of love and compassion. The way you support yourself can be an expression of your deepest self, or it can be a source of suffering for you and others. " ... Our vocation can nourish our understanding and compassion, or erode them. We should be awake to the consequences, far and near, of the way we earn our living.“

Thich Nhat Hahn, The Heart of the Buddha's Teaching, Parallax Press, 1998, p. 104.

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P.A. Payutto, Buddhist economics

“The question of consumption is similar to that of value. We must distinguish which

kind of desire our consumption is intended to satisfy: is it to answer the need for

things of true value, or to indulge in the pleasures afforded by artificial value?

Consumption is said to be one of the goals of economic activity. However, economic

theory and Buddhism define consumption differently.

Consumption is the alleviation or satisfaction of desire, that much is agreed.

Modern economics defines consumption as simply the use of goods and services to

satisfy demand. Buddhism, however, distinguishes between two kinds of

consumption, which might be termed "right" consumption and "wrong"

consumption. Right consumption is the use of goods and services to satisfy the

desire for true well-being. It is consumption with a goal and a purpose. Wrong

consumption arises from tanha; it is the use of goods and services to satisfy the

desire for pleasing sensations or ego-gratification.”

http://www.urbandharma.org/pdf/Buddhist_Economics.pdf

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Christian view: The common good

• “7. Another important consideration is the common good. To love someone is to desire that person's good and to take effective steps to secure it. Besides the good of the individual, there is a good that is linked to living in society: the common good. It is the good of “all of us”, made up of individuals, families and intermediate groups who together constitute society. It is a good that is sought not for its own sake, but for the people who belong to the social community and who can only really and effectively pursue their good within it. To desire the common good and strive towards it is a requirement of justice and charity.”

Pope Benedict XVI, Charitas in veritate, 2009

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Christian view: Option for the poor

The "[preferential] option for the poor" refers to a trend, throughout the Judeo-Christian Bible, of preference being given to the well-being of the poor and powerless of society. Jesus taught that on the Day of Judgment, God will ask what each person did to help the poor and needy: "Amen, I say to you, whatever you did for one of these least brothers of mine, you did for me."

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Islamic economicsThere is great emphasis in Islam on social and economic justice. This justice is possible only when all sections of society can fullfil their economic needs. Therefore, even people who are unable to take part in the economic competition and those who need help to get started in it should have their chances to exist as well. The goals of socio-economic justice and equitable distribution of income and wealth are integral parts of the moral philosophy of Islam. The poor and the needy are entitled to a share of the society’s wealth. Thus, Zakat has central importance in Islamic society. Everybody is permitted to accumulate wealth that is left over after meeting one’s legitimate and reasonable commitments and after giving a percentage of one's income to charity. Another major tool for achieving socio-economic justice is the prohibition of Riba to avoid any unfair advantage in exchange dealings between parties.

http://www.financialislam.com/the-islamic-economic-system.html

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Occupiers

Initial Statement

This initial statement was collectively agreed by over 500 people on the steps of St Paul’s on 16 October 2011. Like all forms of direct democracy, the statement will always be a work in progress and is used as a basis for further discussion and debate.

1.The current system is unsustainable. It is undemocratic and unjust. We need alternatives; this is where we work towards them.

2.We are of all ethnicities, backgrounds, genders, generations, sexualities dis/abilities and faiths. We stand together with occupations all over the world.

3.We refuse to pay for the banks’ crisis.

4.We do not accept the cuts as either necessary or inevitable. We demand an end to global tax injustice and our democracy representing corporations instead of the people.

5.We want regulators to be genuinely independent of the industries they regulate.

6.We support the strike on the 30th November and the student action on the 9 th November, and actions to defend our health services, welfare, education and employment, and to stop wars and arms dealing.

7.We want structural change towards authentic global equality. The world’s resources must go towards caring for people and the planet, not the military, corporate profits or the rich.

8.The present economic system pollutes land, sea and air, is causing massive loss of natural species and environments, and is accelerating humanity towards irreversible climate change. We call for a positive, sustainable economic system that benefits present and future generations.

9.We stand in solidarity with the global oppressed and we call for an end to the actions of our government and others in causing this oppression.

10.This is what democracy looks like. Come and join us!

http://occupylsx.org/?page_id=575

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Assignment: fixing capitalism

• Identify a problem in the market economic system (any problem, large or small, local or global), and develop a solution.

• Structure your argumentation along the Stock Issues Model.

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Stock issues model

1.There is a problem

2.The problem is serious

3.The probleem is inherent to present policy

4.There is an alternative that solves the problem

5.The advantages of the alternative outweigh the drawbacks

6.The alternative is workable

ethics of capitalism

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