Saturday, January 10, 2009

Capitalism Runs on Ethics

Laura Rowley writes an insightful column on possible future trends as a result of the present economic crisis, with some very good observations. However, at the end of the column, she makes some particularly good comments, but I think some could use some elaboration and modification:
Finally, as Warren Buffett once said, "Trust is like the air we breathe. When it's present, nobody really notices. But when it's absent, everybody notices." That giant sucking sound you hear is the American investor, gasping for breath.
In a recent op-ed, 'The Wall Street Journal' suggested that "capitalism runs on trust." But the truth is, capitalism runs on self-interest.

If there is an object lesson that will shape this generation of savers and investors, it's one of betrayal. Capitalism runs on self-interest. Guard yours carefully.

I would say that this chain of thought is not quite accurate. Capitalism requires trust. Trust is absolutely necessary for the entering into of contracts and the expansion of the division of labor. We must trust others in order to take the "leap of faith" in signing a mortgage, investing money, or learning and practicing specialized skill sets which leave us vulnerable to the whims of others in trading for the goods we need to survive. However, trust does not ensure that contracts are fulfilled upon signing and that trade is open and honest, as we have recently learned.

And capitalism certainly does contain an element of self-interest. Quite a large dose, in fact. There is nothing really wrong with that. It keeps us motivated at improving our own situations, and I should hope that people would universally be motivated to improve their situations. It's really the whole basis of the American Dream. Nothing wrong with that.

The important thing here, or rather, the important thing that is missing, is ethics. As I have said before, capitalism is absolutely, utterly dependent on ethics. Self-interest is a perfectly wonderful thing so long as it exists and acts within an ethically structured framework. Ethical capitalism has usually bent the already virtuous quality of self-interest towards the service of others in an efficient and free economy.

It doesn't get any better than that!

And Warren Buffet or anybody else can spend any number of words expounding the necessity of trust and be perfectly correct, but this is really to point out the obvious and misses the key element has soured and is sinking the global economy. Trust does not spring from some bottomless well somewhere that we must somehow figure out how to tap into once again. Trust grows on the foundation of the experience and practice of sound ethics. With an ethical foundation, trust will grow and flourish, but without it, it withers and dies. The ethical foundation which sustained American prosperity is now crumbling, and has been for some time.

So trust withers, and markets decay.

Capitalism does not run primarily on self-interest. It runs primarily on ethics. Without ethics, self-interest turns to theft, fraud, and violence. This is not capitalism, it is its opposite. Ethics is the more fundamental parameter.

Ethics are not produced by rules and regulations. We have rules and regulations. They didn't stop Bernie Madoff or Ken Lay. Changing them won't fix things.

Government doesn't produce ethics either. It reflects popular sentiment. Which is probably why it is beginning to resemble American Idol or some reality show, and doesn't work very well, its actions resting on silly popular sentiments and notions far detached from reality, but which are nevertheless politically popular.

Reality doesn't care about what is politically popular.

God is the source of ethical mandate. I hate to sound like some wanabe Isaiah, but as America has turned away from God, well, it has had consequences.

That's the real problem here, but nobody wants to admit it. Nobody wants to say so. People will talk about economics, or the stock market, but not ethics or their relationship with God. Especially not in public. It certainly won't get you good ratings on TV or radio.

It's not cool. It's not hip. It makes you sound like a kook, or a pious jerk. So it is neither spoken nor heard.

So don't expect a solution any time soon.

No comments:

Post a Comment