Ethics of capitalism


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Ethics of capitalism

  1. 1. Business Ethics IMBA 2013Lecture 6 Ethics of capitalismProf. dr Ronald Jeurissen
  2. 2. Goals for Today• Defining capitalism• Overview of historical developments in capitalism• Moral justifications and criticisms of capitalism• Alternatives to capitalism• Fixing capitalism 2
  3. 3. 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 3
  4. 4. Capitalism Today: Five Defining Features1. Existence of companies (as legal entities)2. Profit motive3. Competition4. Private property (capital, means of production)5. Regulation (anti-trust, labour law, anti bribery etc.) 4
  5. 5. 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. 5
  6. 6. Max Weber: The protestant ethic and the spirit of capitalism, 1904Protestant Spirit of capitalism:innerworldly •zeal and temperanceasceticism: •hard work Secularized intoCalvin and the •frugalityEnglish Puritans •save and investconsidered the •time is moneyeconomic attitudes – •profit maximizationthrift, diligence,sobriety, frugality,work in a calling – asChristian virtues. 6
  7. 7. 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.”Benjamin Franklin, Advice to a Young 7Tradesman, Written by an Old One, 1748.
  8. 8. Werner Sombart: Capitalism as hedonismCapitalism emerged from the demand for new consumer goods by a youngbourgeoisie, who had an urge to resemble nobility. Sombart sets the origin ofcapitalism in a context of hedonism, which is interpreted as the bourgeoisiesdesperate mimicry of the feudal aristocracy. The then emerging accumulative andprofit-oriented system was, according to Sombart, not triggered by protestantideologies 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 andknick-knacks, which promoted a desire to have more money. This desire for moremoney is therefore equivalent to striving for similarity with something (with nobility),but also to simultaneously depreciating and desiring something else (women), and togaining economic power.W. Sombart, Luxus und Kapitalismus, 1922. (Luxury and capitalism) 8
  9. 9. 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* Source: Moral Issues in Business (8th ed.), by W. Shaw & V. Barry, published by Wadsworth.Full article is available on the Portal 9
  10. 10. 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 10
  11. 11. 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 – ? 11
  12. 12. A Brief History of CapitalismEarly 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) 12
  13. 13. United East India Company (VOC, 1602) 13
  14. 14. ‘Heeren 17’ (17 gentlemen) 14
  15. 15. A Brief history of capitalismIndustrial 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) 15
  16. 16. 16A. Von Menzel, Das Eisenwalzwerk
  17. 17. A brief history of capitalismWelfare 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 17
  18. 18. Consumer culture 18
  19. 19. A brief history of capitalismShareholder 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 19
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  21. 21. A brief history of capitalismGlobal capitalism: 21st century – ?•Science based innovation•Rapid industrialisation and rise to power ofdeveloping countries•Multipolar world•Global macro-economic policies•Global environmental problems 21
  22. 22. 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) 22
  23. 23. Market economy: The invisible hand“He intends only his own gain, and he is in this, as in manyother cases, led by an invisible hand to promote an endwhich was no part of his intention. Nor is it always theworse for the society that it was not part of it. By pursuinghis own interest he frequently promotes that of the societymore effectually than when he really intends to promote it. Ihave never known much good done by those who affectedto trade for the public good. It is an affectation, indeed, notvery common among merchants, and very few words needbe employed in dissuading them from it.” Adam Smith, Wealth of Nations, 1776, Book IV, ii, 9 23
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  25. 25. ‘Private vices, public benefits’, Mandeville (1670-1733)“They that examine into the Nature of Man, mayobserve, that what renders him a SociableAnimal, consists not in his desire of Company,Good-nature, Pity, Affability, and other Graces ofa fair Outside; but that his vilest and most hatefulQualities are the most necessaryAccomplishments to fit him for the largest, and,according to the World, the happiest and mostflourishing Societies.” (Fable of the Bees, 1724,Preface) 25
  26. 26. Milton Friedman, ‘Free to choose’ 26
  27. 27. 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 27
  28. 28. 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). 28
  29. 29. Criticisms of Capitalism• Competition is faulty – Breeds oligopolies (e.g., food industry)• Exploitation, alienation and dehumanization – Externalisation of costs 29
  30. 30. Marx’s criticism“The directing motive, the end and aim of capitalist production, is toextract the greatest possible amount of surplus value, andconsequently to exploit labour-power to the greatest possibleextent. As the number of the co-operating labourers increases, sotoo does their resistance to the domination of capital, and with it,the necessity for capital to overcome this resistance bycounterpressure. The control exercised by the capitalist is not onlya 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 ofthe exploitation of a social labour-process, and is consequentlyrooted in the unavoidable antagonism between the exploiter andthe living and labouring raw material he exploits. .“ (Marx, Capital,Vol. 1. Ch. 12) 30
  31. 31. The paradox of choice“Having too many choices producespsychological distress, especially whencombined with regret, concern about status,adaptation, social comparison, and perhapsmore important, the desire to have the best of everything – to maximize”.(G. Schwartz, The paradox of choice: Why more isless, HarperCollins, New York, 2005, p.221.) 31
  32. 32. Alternatives to capitalism• Buddhist, Christian and Islamic views• Occupy movement 32
  33. 33. Buddhism: right livelyhoodthe eightfold path towards Nirvana1 right view2 right intention3 right speech4 right action5 right livelyhood6 right effort7 right mindfulness8 right concentrationRight livelyhood is the step of particular interest from an economicperspective. Right livelyhood is a way of making a living that doesnot harm others. 33
  34. 34. Buddhism: right livelyhood"To practice Right Livelihood (samyag ajiva), you have to find a wayto earn your living without transgressing your ideals of love andcompassion. The way you support yourself can be an expression ofyour deepest self, or it can be a source of suffering for you andothers. " ... Our vocation can nourish our understanding andcompassion, or erode them. We should be awake to theconsequences, far and near, of the way we earn our living.“ Thich Nhat Hahn, The Heart of the Buddhas Teaching,Parallax Press, 1998, p. 104. 34
  35. 35. P.A. Payutto, Buddhist economics“The question of consumption is similar to that of value. We must distinguish whichkind of desire our consumption is intended to satisfy: is it to answer the need forthings 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, economictheory 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 tosatisfy demand. Buddhism, however, distinguishes between two kinds ofconsumption, which might be termed "right" consumption and "wrong"consumption. Right consumption is the use of goods and services to satisfy thedesire for true well-being. It is consumption with a goal and a purpose. Wrongconsumption arises from tanha; it is the use of goods and services to satisfy thedesire for pleasing sensations or ego-gratification.” 35
  36. 36. Christian view: The common good• “7. Another important consideration is the common good. To love someone is to desire that persons 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 36
  37. 37. Christian view: Option for the poorThe "[preferential] option for the poor" refers to a trend, throughoutthe Judeo-Christian Bible, of preference being given to the well-being of the poor and powerless of society. Jesus taught that on theDay of Judgment, God will ask what each person did to help thepoor and needy: "Amen, I say to you, whatever you did for one ofthese least brothers of mine, you did for me." 37
  38. 38. Islamic economicsThere is great emphasis in Islam on social and economic justice. Thisjustice is possible only when all sections of society can fullfil theireconomic needs. Therefore, even people who are unable to take part inthe economic competition and those who need help to get started in itshould have their chances to exist as well. The goals of socio-economicjustice and equitable distribution of income and wealth are integralparts of the moral philosophy of Islam. The poor and the needy areentitled to a share of the society’s wealth. Thus, Zakat has centralimportance in Islamic society. Everybody is permitted to accumulatewealth that is left over after meeting one’s legitimate and reasonablecommitments and after giving a percentage of ones income to charity.Another major tool for achieving socio-economic justice is theprohibition of Riba to avoid any unfair advantage in exchange dealingsbetween parties. 38
  39. 39. OccupiersInitial StatementThis initial statement was collectively agreed by over 500 people on the steps of St Paul’s on 16 October2011. Like all forms of direct democracy, the statement will always be a work in progress and is used asa basis for further discussion and debate.1.The current system is unsustainable. It is undemocratic and unjust. We need alternatives; this is where wework towards them.2.We are of all ethnicities, backgrounds, genders, generations, sexualities dis/abilities and faiths. We standtogether 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 ourdemocracy 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 30 th November and the student action on the 9 th November, and actions to defendour 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 forpeople 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 andenvironments, 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 andothers in causing this oppression.10.This is what democracy looks like. Come and join us! 39
  40. 40. 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. 40
  41. 41. Stock issues model1.There is a problem2.The problem is serious3.The probleem is inherent to present policy4.There is an alternative that solves the problem5.The advantages of the alternative outweigh thedrawbacks6.The alternative is workable