Because Capitalism

When Barack Obama was elected President of the United States in 2008 this was treated as a landmark event. He presented himself as the underdog, an outsider from a minority background, who spoke eloquently about a fairer society, an end to war in the Middle East, transparency in government and a green future. His speeches promised “change” and “hope,” and voters were infused with optimism. Eight years later a fair assessment of his efforts is that they were hardly any better than George W. Bush’s.

In the current election cycle there are two new candidates pledging hope and change: Bernie Sanders and Donald Trump. Occupying opposite corners, they have painted pictures of two very different futures for the United States: democratic socialist and cult-of-personality capitalist.

Their campaign speeches are interesting to observe. In trying to make sense of their success, particularly in the case of Trump, it is apparent that the idea of a savior is infectious and appealing.

Trump presents himself as a man who gets things done. The appeal to his supporters is that feeling good about the future is easier when you've got a strong man to tackle your problems – someone who will fence off the hostile outside world, bomb the terrorists who threaten to infiltrate our ranks, and bring back the jobs from whoever it was that stole them. Never mind that much of what he proposes to do is in fact illegal under both domestic and international law, and far too simplistic in its conception.

In the case of Bernie Sanders, he has pledged a “future to believe in” and that a “political revolution is coming”. His appeal seems to operate on two levels. On the first he articulates a vision of an America more like Scandinavia, with free education, healthcare and welfare for those in need. He speaks from the heart about inequality, and wants his campaign to “end a rigged economy where the rich get richer and everybody else gets poorer, and create an economy that works for all of us, not just the 1%.” This is a common enough narrative and one to which he has been faithful for a long time.

But beyond such specifics, there is a more general dynamic operating. A swing to the extremities in the tastes of voters signals that faith in the mainstream narrative is breaking down. Things are not working and people are starting to notice.

Huge numbers of the American population are impoverished, two million of them are incarcerated, and tens of millions live under the influence of tranquilizers and sedatives. We've heard all of these statistics before. College graduates who expected a middle class family life are working as waiters and bar-tenders while living with their parents. Going to the doctor or a hospital is a thing to be feared because it may lead to bankruptcy. The police have become as violent as the criminals they seek to protect us against. Climate change carries on relentlessly, blithely ignoring treaties and accords. Politicians tell lies, lies and more lies, and much of the television news is little more than a reflection of the dark hearts of Rupert Murdoch and his billionaire cronies who own the majority of media channels.
Sander's humanity and fighting talk are a tonic for those who want something better to believe in. But even he has fears about whether he can really deliver on what people are expecting of him. In an interview at the end of last year, he confided that “people are asking a lot of me” and that for himself he had posed the question: “Can you deliver what people need and what they want?”

These thoughts are perfectly understandable, and Sanders is no doubt aware that there is a very powerful force working in opposition to his good intentions. This is the prevailing incentive system, and it is deeply entrenched and subversive.

The following extract from 150 Strong: A Pathway to a Different Future describes how the primary incentive system currently operating acts to thwart even the most noble political efforts. This is what is at the heart of the current predicament. Nothing changes until the prevailing incentive system is changed.

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The dominant reconciling force in all of our worldly affairs at present is the profit motive, and the effects of that cannot be overstated. It is the organizing principle that we operate by above all others.

For while there are many other values that may be considered important in our society – social justice, environmental protection, community engagement – no enterprise can survive without surplus assets generated by profit. And without profitable businesses a country or a region will not have the tax revenues to fund its activities, and it too will fail. Profit is therefore imperative, and in the administration of the affairs of state and business all other aims are secondary.

Translated into everyday life, there is a simple creed from David Copperfield by Charles Dickens: “Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.” It expresses the relationship that is fundamental to the capitalist system and goes some way to explaining how the reconciling force of the profit motive shapes much of the world as we know it. It is a precondition of success in our modern society that we must remain financially solvent, and in order to do this profit is paramount.

Before we can further explain the technical details of how the profit motive manifests itself as a reconciling force, we first need to identify two other forces: the creative force of entrepreneurship and the constraining force of limited resources. Not all entrepreneurs can succeed in their ventures, because only the most profitable can survive.

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The Limits on Social Responsibility and Ethical Standards

The renowned 20th-century economist Milton Friedman also understood something of the objective rationality of the profit motive, and one of his more controversial theories stated that, provided it does not break the law, under no circumstances should a business aim to do anything other than make a profit. He believed that social responsibility was a fundamentally subversive doctrine, and was scathing of those who claimed that businesses should concern themselves with promoting desirable social ends. In Friedman’s view, it would be tantamount to treason if a business executive were to consider taking on responsibility for “providing employment, eliminating discrimination, avoiding pollution and whatever else may be the catchwords of the contemporary crop of reformers.” (New York Times Magazine, September 13, 1970) While it may be controversial and somewhat ruthless, the validity of his theory is apparent: shareholders have the right to sue the directors of a public company if they believe the directors are not acting in their interests to maximize profits.

In practice, there are many shades of gray associated with the implementation of this statute, and businesses adopt various policies of social responsibility to further their interests, their motives ranging from altruistic at the positive end of the scale to calculated and self-serving at the other. Somewhere in the middle of this range is the theory of green economics, which holds that consumers will pay extra for environmentally friendly products, thus aligning the social good of environmental protection with the business aim of profit. Accordingly, a chicken farmer is able to sell free-range eggs for a higher price to those who oppose the cruel practice of keeping hens in cages.

But when businesses face an ethical choice that does not result in increased profitability, the choice of business executives ultimately comes down to whether to remain in business or not. Regardless of the level of social or environmental aspirations of a private enterprise, the underlying reconciling factor must always be profit, because without profit the enterprise will cease to exist, along with its superior moral and ethical stance.

And so there are many questionable situations that arise in our society that are accepted as normal, because companies must compromise their ethical standards in their quest for profits. To sell their product, cereal companies put so much sugar in children’s breakfasts that it is damaging to their health. Moneylenders make people slaves to debt by giving loans to those who are in no position to repay them. Casinos make money from gambling addicts, and furniture companies make furniture from old-growth rain forests. Supermarkets sell tuna caught from stocks that are overfished and approaching extinction. Food companies douse the soil with pesticides, killing the life of the land. Alcohol and tobacco companies market to the addicted and the vulnerable. Employers put thousands of people out of work at short notice to beat analysts' expectations. Mining companies build mountains of toxic tailings that leach into the ground water. Media companies exploit the suffering of grieving people to sell newspapers and magazines. Arms manufacturers sell advanced weapons systems to murderous regimes. Power companies build nuclear power plants on earthquake fault lines. The litany of examples of compromised ethics goes on and on, and there are many thousands of books and films that bear witness to them and the suffering that they cause.

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The Profit Motive is Inherently Negative

A basic effect of the profit motive on society is that it promotes a gross form of selfishness. The imperative of the marketplace to make a profit means that there is little room for sentiment, for the niceties of human dignity or compassion, because if you take your eye off the bottom line someone will take over your market share and muscle you out of business. There are a few moderating influences: the influence of the self-aware, ethically-attuned consumers (who swiftly turn into price-sensitive consumers as soon as ethics impinges on their spending power); attempts at regulation through law (which is a clumsy instrument); and the innate goodness of people that shines through in some situations. But in the game of capitalism the most selfish participants generally come out to be the winners.

The profit motive also promotes greed in its most potent form by encouraging hoarding: the successful competitors strive to accumulate a larger surplus than their rivals, because the bigger their pile, the more secure their position. This creates a class of wealthy people who, with an overabundance of resources at their disposal, are able to enjoy material pleasures to an excess, while others are forced to live without even the basic necessities. That class of wealthy people is also able to indulge in the more subtle psychological pleasure of exhibiting their influence and self-importance, which accrues to them through their control of resources. In turn, this creates divisions in society and establishes hereditary privileged groups, which further amplify these patterns of greed over time.

In any situation where there is greed, at the opposite swing of the pendulum there awaits its faithful companion – fear. For those who have wealth, there is the eternal fear of losing it, and for those who have never had wealth in the first place there is the fear of not being able to survive and make their way in a world dominated by greed and selfishness. While we teach our children not to be selfish, greedy or afraid, we do all we can to perpetuate a system that has these three negativities at its very core. How can we expect our children not to see us as hypocrites?

Aldous Huxley suggested that “Our present economic, social and international arrangements are based, in large measure, upon organized lovelessness,” and, on the evidence, it appears that he was right. Our current system, governed by the reconciling force of profit motive, is dominated by greed and fear – certainly not love! This is a fact that even the most fervent supporters of the capitalist system cannot hope to refute, and while some, such as the libertarian devotees of Ayn Rand, somehow find it possible to rejoice in it, it stands to reason that if we continue on this path of embracing profoundly negative values, it will surely lead us to our destruction.

It is true that politicians can enact legislation that directs behavior through the threat of punishment, or by rewarding desirable conduct, but the law is only a moderating force. It can only do so much. And, as was discussed in Part 3 of this serialization, the application of the law is fraught with unintended consequences, prone to the perpetuation of bias, and is a driver of much negative behavior.

It is only by addressing the incentive system operating that we might be able to produce outcomes that are significantly different. On this, there is more to come from 150 Strong: A Pathway to a Different Future.