Wednesday, October 1, 2008

A Kinder, Gentler Capitalism

I guess free marketers like myself are going to have to get used to a chorus of 'I-told-you-so' stories in the coming days, weeks and months. Greedy capitalists has been found out and found wanting: they were just in it for the money after all. Or so it goes according to our resident economic sirens including, alas, Archbishop of Dublin Diarmuid Martin.

Archbishop Martin was interviewed on RTE last week and his comments were reported in The Irish Times. Commenting on the present financial crisis, the Archbishop called for a fairer, more equitable capitalism - through government intervention if necessary.

I think the Archbishops views are both inevitable and unhelpful. They are inevitable because there is a long tradition in Irish Catholic thought in particular that is anti-business: usually anti 'big business' - but it doesn't tend to be all that discriminating. Tom Garvin, in his magnificent book Preventing the Future, talks about the ideology of Distributivism and Vocationalism that pervaded a great deal of Irish Catholic thinking from the early 20th century right through to today. It gave rise to an ethos that essentially saw profits as a necessary evil, with usually more emphasis on the latter word. CORI are the but the latest manifestation of this ethos in Irish society: and Social Partnership is an obvious example of the ethos in practice.

The Archbishops views are unhelpful because they simply fly in the face of everyday reality for 99% of business owners and directors in Ireland. Ireland is fast becoming a less-than-ideal place in which to run a business. Aside from the extraordinary costs of doing business here (from labour and energy costs to legal fees and compliance charges), there is the added disadvantage of trading and competing in the euro currency in markets such as the UK and USA (on which we are more dependent than any other eurozone country). On all these matters the Archbishop (and CORI) have absolutely nothing to say: except when the global financial casino implodes and out come their stock 'evil, greedy capitalists' explanations.

As someone who had worked much longer than me in the world of business once put it: 'after many years in the rat race I haven't met many rats'. And that is the reality: most people running businesses are decent, ethical human beings motivated by a desire to build a successful business that rewards its employees and its shareholders, keeps its customers happy, and fulfils their own personal ambitions for success and significance. The only way to sustain that ambition is to run the business profitably. But it never means maximising profits regardless of everything else: that would merely sabotage the collective, long-term ambitions of directors and staff alike.

Those who don't work in business generally don't get it: they enjoy the luxury of a salary or pension at the end of the month without the slightest fear that it will not be in their bank account when they go to check. They can even afford to entertain delightful delusions such as that of Fintan O'Toole in his recent Irish Times piece claiming that 'there is not such thing as private enterprise'. Here he is in full flow:
What the present crisis is revealing is something that those on the left have always known. It is, quite simply, that there is no such thing as private enterprise. The market system, even in its most enthusiastically buccaneering forms, is underpinned by governments. It is not just that governments create the framework of law and the physical and social infrastructure that allows businesses to function. It is that governments, whether they like it or not, are the ultimate guarantors of the financial system that in turn drives the entire economy.

... When money is flowing like Château Petrus at a stock dealers' dinner, the Nanny State is a dreadful bitch. When the bill has to be paid, the Nanny State is the beloved mother beneath whose skirts we can hide from the storm.
Fintan's is merely a secular manifestation of the Archbishop's anxieties: free enterprise = financial capitalism = evil rich people exploiting the poor. It confounds two fundamental mistakes:

  1. that money is something capitalists/business people create and control, and
  2. that it would be better if the state cut out the 'fat cat' middle-man and ran things itself.

On the first one let me explain, briefly. All currencies everywhere in the world are controlled and created by national governments or pooled authorities such as the European Central Bank. No private company or bank anywhere in the world creates its own money supply. All currencies everywhere are 'fiat currencies' - literally: created out of nothing as no currency is linked to any independent source of value such as gold. Furthermore, no bank anywhere in the world exists except for the consent of a national government. So to take Fintan's point that "governments, whether they like it or not, are the ultimate guarantors of the financial system that in turn drives the entire economy", I would simply add: you don't go far enough Fintan. You see: Governments are not just mere guarantors of the financial system - they own it.

As for the second mistake - we are now experiencing a swing of the financial pendulum back to the left of the political spectrum. Hence the calls for more regulation etc. My only comment on that is: who regulates the regulators? Is it possible that we have had a regulatory failure in so many countries on account of the inevitable fact that it is government that runs the regulators - not free enterprise? And that the politicians who comprise government will always be driven by their ambitions for political power without necessarily worrying about the wider implications.

I hope we will see a change in perspective by the Archbishop and his contemporaries as the present crisis unfolds. The issue is not one of regulation and state control, it is actually about something that the Archbishop is well placed to comment on, namely: moral behaviour. As one free market supporting, Catholic think tank remarked recently:
Unfortunately, those who advocate for a larger role for government in our daily lives will be able to point to the Crisis of 2008 as "exhibit A" for why we should not be left alone to pursue our own best interests. However, this criticism misses a critical assumption that we make when advocating a free-market economy - it requires a virtuous people who are willing to assume personal responsibility for their actions. Without right behavior, liberty quickly descends into license.
So let's stop generalising from the irresponsible greed and stupidity of a few, and focus on ensuring the ongoing contribution of the ethical majority. If anything, setting up and expanding a business in the current climate is going to take a great deal of moral courage. I hope the Archbishop can be counted on to provide all the encouragement necessary.


  1. 1) Wealth and money are two different things. The government might make the money, but not the wealth.

    2) People are shit, basically. I don't mean this in a bad or pessimistic way, we just are not a bunch of angels, and while I accept that regulation necessitates regulators who are also, by the above definition, shit, I don't necessarrilly agree that the 'survival of the fittest' approach of unfettered capitalism does anything other than put the predators at the top of the food chain. It's a lazy solution, it's like saying "This problem is too hard, everything we do just causes more issues, let's leave it alone to function in it's non-ideal manner because fixing it would be just too difficult".

  2. Replace taxes on economic activity and virtually all government expenditures with a citizens’ dividend funded from a use fee for the net, in-place liquidation value of property rights beyond those that an individual would successfully defend in the absence of government (home and tools/weapons) — a use-fee equal to the risk free interest rate on said in-place liquidation value.

    This is of course unacceptable because it eliminates rent-seeking in both the public and private sectors and the parasites in the public and private sectors jut KNOW they're entitled to the economic rent of the land.

  3. I think that the idea of enlightened self-interest explains it best. It applies to everyone in an commercial situation. You could just rob the place to serve your self interest but most are smarter than that and realise that participating in the system is to their ultimate benefit. I've never met Michael O'Leary but his actions - in his own enlightened self interest - changed my life. How the government stifling competition in the aviation sector would have helped that I'll never know..

  4. thriftcriminal is right - it's about what sort of folk are people anyway.

    I agree with Kurt Vonnegut who said:

    "I believe in original sin. I also believe in original virtue. Look around!"

    A million and more people met each other on the streets and roads of Dublin today ... and nothing happened. Some even let others go first.

    The News tonight is about original sin. The lived reality today and tomorrow and the next day is about original virtue. Look around ...

  5. Pope says meltdown shows'Money is nothing'

    An interesting piece citing Pope Benedict XVI contrasting money and God, the former which can just appear and disappear randomly whereas the latter...

    Interestingly, the Holy See made a killing when the dollar plummeted last year, they have a well diversified portfolio it seems.. their finances have been remarked as being blessed(!) with a 'midas touch' in recent years so maybe they are just putting up a smoke screen(!) and keeping their financial cards close to their chest.


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