Issue Briefs

The Moral Case for Capitalism

The Moral Case for Capitalism

Paolo von Schirach  

April 28, 2016

Here is a real shortcoming in American politics. In this critical election year no candidate from either party has been able to articulate in a simple, clear and cogent manner the moral case for free market capitalism. (In fact, former Florida Governor Jeb Bush and John Ohio Governor Kasich tried. But they have not done this convincingly. Bush got no traction with voters and left his quest for the Republican nomination a long time ago. John Kasich is still hanging on, but way behind the other candidates).

By “making a moral case for capitalism” I mean the willingness and the ability to convince people, especially the poor and disadvantaged, that capitalism and free enterprise are good for everybody, including those who are currently at the bottom of the economic pile, and therefore severely disadvantaged. And by that I do not mean that people should be convinced that on balance capitalism delivers better results than social democracy. This is true in principle. But this truth does not resonate with Americans who are and feel helpless because they see no open path forward.

When I say that we need to make the case that capitalism is “morally superior” I mean the ability to explain how capitalism is more than just about profits. With all its flaws, capitalism is a system that on balance empowers people, and therefore improves their chances to control their own destiny.

Focus on welfare

But this is not our collective belief. Up to this point, existing U.S. public policy is implicitly premised on the accepted notion that the poor cannot participate in a capitalistic economy. Because they are poor, they need instead assistance in the form of various subsidies. And for how long? Essentially forever.

Here is the simple truth. Even if well intentioned, welfare programs make poor recipients perpetually dependent, and therefore incapable of taking action aimed at improving their conditions. Whereas a system that encourages initiative while providing help aimed at increasing the chances of getting a job, would foster personal responsibility while pushing people to take charge of their own lives. Eventually this approach will make recipients more self-confident and more optimistic.

Bill Clinton’s welfare reform worked 

Let’s think for a moment about President Bill Clinton’s partial welfare reforms. At issue at the time was public aid to single mothers. These were mostly uneducated and poor African American young women with small children, trapped in an endless cycle of dependence on public subsidies.

Being poor, they were entitled to get enough money through public programs to survive. But the programs as designed provided no real incentives so that recipients had to do something in order to get out of poverty. The reform passed by President Clinton was about sun setting benefits, while at the same time giving the women new tools, so that they could become employable and find work.

It will not work 

The critics cried that this would never work. They argued that this reform was in fact about taking the life jackets away from shipwrecked, defenseless women, thereby drowning them. Well, the reformers argued instead that the goal was to teach these women how to swim before taking their life jackets away.

And, on balance, this reform worked. Women previously dependent on public welfare received help on how to make themselves employable and find jobs. There were lots of positive testimonials by women who had received training and found work, so that they could take care of themselves and their children. As a result, they felt more optimistic and more self-confident.

The “moral case for capitalism”

This is what I mean when I talk about the “moral case for capitalism”. An economic system that on balance encourages people to become self-reliant and independent is morally superior.

If we recognize this basic premise, then the purpose of enlightened public policy should be to make sure that all citizens, including those who are currently most disadvantaged, “learn how to swim”, so that they can be trained to do away with the life jackets of perpetual public assistance. For young people this means that all children should have real access to quality public education. Meaningful adult education and/or training should be made available to all adults who did not have a chance to get an education as children.

Of course, there are special circumstances in which public assistance is still warranted. But these should be the exceptions, not the rule. Temporary relief should not morph into a permanent subsidy that in the end discourages people from taking control of their own lives.

Assuming functioning training programs for adults and good schools, we could have most citizens taking part in a rules based competitive system in which all participants have a fair shot at doing something and making a decent living without public assistance, because they are empowered by a good education and/or meaningful training programs that give them the tools to become active participants.

What both Democrats and Republicans have failed to do during this campaign is to make a moral case for free market economics and the role of public policy in enabling and fostering it. Indeed, if we are convinced that free market capitalism on balance works, then public policy should be about making sure that everybody can and will participate.

Public policy is about giving everybody a good chance 

Good public policy aimed at helping the poor is not about more subsidies or about creating fake, unproductive jobs. It should be about making sure that all citizens get into adulthood “knowing how to swim”. And this means that everybody –all Americans– should be reasonably well educated.

It is obvious that in this ultra-competitive world a good education is the same as “knowing how to swim”. Without good to superior public schools children born in poverty do not have any real chance to get out of poverty. They really do not. Current public programs provide relief; but nothing more. Hence the self-perpetuating cycles of dependence and endless marginalization. Again, if we want to make a convincing case that capitalism is about hope and opportunity, then all people should have good tools, so that they will be able to participate.

Until now we have tried to deal with poverty attacking the symptoms through well-intentioned but flawed public assistance programs. However, mountains of evidence prove that this “relief” approach has done nothing to eliminate, or even substantially reduce poverty.

It is time to realize that the poor need to learn real skills so that they will have the tools enabling them to get them out of poverty. Capitalism works well for those who have the ability to participate in the economic life of the nation. The goal of public policy should be to make sure that all or at least most citizens can participate.

If our society is genuinely committed to include and give a real chance to everybody, then we can make a “moral case for capitalism”.

I realize that transforming our value systems and the content of public policy so that it will focus on these objectives of “real opportunity for all” is very difficult. But this is a worthwhile cause. Perhaps the most critical one we can think of.

This is about having more self-confident citizens who know that they have the ability to take care of themselves. As they take care of themselves, they get jobs and produce more wealth, this way creating a more prosperous society.

Paolo von Schirach is President of the Global Policy Institute and an Adjunct Professor at BAU International University. A different version of this article first appeared in the Schirach Report