by Stephen Lampe
More and more people are recognizing that there are missing elements in the market economy. In my opinion the missing links have to do with issues of morality and ethics It is noteworthy that moral turpitude in the business world is the trigger for some of the changes in the structures of the market economy that are now widely acknowledged as imperative and that are already being implemented in some countries. Unfortunately, modern economic theory completely ignores matters of morality and ethics. While there are missing elements, it turns out that there are significant unwanted criminal elements in the current market economy, even in the bastions of capitalism. Thus, several major companies in the United States have been found to have illegally manipulated their accounts in collusion with fraudulent accountants and auditors and they have defrauded investors, clients, and business partners. There have also been revelations about hugely excessive remunerations of chief and senior executive officers of companies, even of those that are unprofitable or have even filed for bankruptcy. Many boards of directors of companies have been found to be ineffective and to be partners in crime with senior management. And the callousness of the senior executives of several companies towards lower and middle level employees have been documented. (One wonders how much of such evil practices are going on in the Nigerian corporate world right now).
The corporate scandals might call into question the validity of the market economy. But I believe that the problem is not with the market economy as such. It is with the fact that the market economy operates in a moral and ethical vacuum. Adam Smith (1723-1790), who is widely considered the father and founder of modern economics, published his landmark book, The Wealth of Nations, in 1776, in which he clarified the workings of a market economy. He explained that if an exchange between two parties is voluntary, it will not take place unless both believe they will benefit from it. No exchange would take place if one or both parties stand to lose. Thus, if all economic activities are based on voluntary exchanges, all the participants in the economy will benefit. Let?s note the emphasis on the presumed voluntary nature of economic transactions. In Adam Smith's conception, the market economy operates in a free society, a society of, in his words, "perfect liberty". To illustrate the importance of self-interest or the profit motive (as against benevolence) in the market place, he wrote:
It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages. Nobody but a beggar chooses to depend chiefly upon the benevolence of his fellow citizens (Adam Smith, The Wealth of Nations, New York, Modern Library, 1937, p.14).
Adam Smith was not prescribing how people should behave; he was simply stating how free people do behave, and the consequences of such behavior. And he was convinced that the natural behavior of free people was the best way to ensure that goods and services were produced in adequate quantity and quality and distributed in the most efficient manner.
What is almost invariably missing in the discussion and application of Adam Smith?s ideas are the conditions he took for granted. The first obvious one is that buyer and seller must have alternatives. If there is only one food producer in the town, the person who needs food must buy at the price dictated by the producer or starve to death. Thus, Adam Smith would consider it foolish to speak of market forces or "the invisible hand" where genuine competition is lacking. Another implicit assumption of Adam Smith was that in seeking their self-interest people would behave ethically, with conscience and with compassion. With respect to the ethical factor, it should be noted that Adam Smith was a Professor of Moral Philosophy (at the University of Glasgow) and that in those days and for a long time, the subject of economics was seen as something like a branch of ethics. He had earlier in 1759 written a book entitled The Theory of Moral Sentiments and published a revised edition of it in 1790 (about 14 years after publication of The Wealth of Nations). As a moralist, Adam Smith never supposed that man is driven solely by self-interest in a material sense. He knew and assumed that for many people "self-interest" would include the idea of conforming with the natural law that says that "whatsoever a man soweth that shall he reap". In other words, Adam Smith it took for granted that people would show the "fear of God" and exhibit the values and virtues of Christianity (the predominant religion and cultural influence of his place and his time). In an essay on the idea of compassion (The Public Interest, Fall 2001), Gertrude Himmelfarb observes that Adam Smith "gave currency to the terms that became the key concepts in British philosophical and moral discourse for the whole of the [eighteenth] century - such as 'social virtues', 'social affections', 'natural affections', 'moral sense', 'moral sentiments', 'fellow-feeling', 'benevolence', 'sympathy', and 'compassion'". In his book On Ethics and Economics, Amartya Sen, who won the 1998 Nobel Prize for Economics in part for bringing ethical considerations into economic analysis, asserts that a major deficiency of contemporary economic theory arises from interpreting Adam Smith's view of human beings as being exclusively self-interested in a material sense; this theoretical deficiency in turn leads to bad policy recommendations by economists and a bad name for the market economy.
An issue arising from the idea of the market economy is what to do about those who cannot enter into market transactions, those who have nothing to offer "the butcher, the brewer, or the baker". Some people, including severely handicapped people, cannot participate in the market economy and the market system per se cannot provide them any benefits. To address this problem, we require measures that are not inherently a part of the market economy as currently conceived and practiced. The foundation for solutions to the problem lies in the knowledge that justice and love are inseparable. They are like two sides of the same coin. I consider the market economy a system of justice which needs to be balanced with a system of love; or in popular parlance, market forces must be given a human face. A just society to be sustainable, must also be a loving society. Too often, those who promote the market economy are unmindful of the necessity for balance achieved through programs of love and compassion. However, one must note that love is the unselfish and benevolent concern for the spiritual good of another. True love seeks what would give spiritual benefit to the one loved, not necessarily what is pleasing to either party. In the understanding that the purpose of life is spiritual and not material, true love would do to the loved one that which would advance his/her spiritual development, even if it brings him/her momentary physical pain or material deprivation. Thus, true love does not seek to create a life of indolent comfort and indulgence, a life free of care. This understanding immediately suggests that while measures to alleviate suffering resulting from market forces are absolutely necessary, they must be designed in such a way as to discourage indolence and long-term dependence on the part of the able-bodied. Societies must also take deliberate measures to encourage philanthropy and selfless services, which reflect the "love side" of the economic coin and which can contribute towards assisting those adversely affected by market forces.
Another issue central to the market economy is the need for regulation and the cultivation of an ethical framework in which justice can flourish. A market economy has to have a regulatory mechanism, which ensures justice, in the sense that items being exchanged are what they are purported to be and that everyone is able to receive the right amounts of rewards in both quantity and quality for every effort invested, not less and not more. The market economy moreover presupposes a society of "perfect liberty", in which there are mechanisms in place to ensure that individuals, as they exercise their Free Will, do not interfere with the right of others to exercise their own Free Will. This is to say that there is a definite role for the government in the market economy - the legislative and executive branches making and enforcing laws to protect the integrity of the system (competitiveness, individual freedom of action, fair rewards, transparent operations including honest accounting, etc.) and the judicial branch adjudicating. Therefore, we should be hearing more about right regulation than of deregulation. But developing country governments are often being pressured to deregulate even when the absolutely essential right regulatory framework has not been established. The result is exploitation and more poverty. Regulation is a challenging and continuous task because of clever but unethical economic actors who are always one step ahead of new laws and who undermine the regulatory system through bribery. Some may even be powerful enough to cause legislations to be passed that are antithetical to the spirit of the market economy. Relentless and serious war against corruption is thus an absolutely essential element of the market economy.
However, while a strong regulatory framework is necessary for the efficient functioning and health of the market economy, it is not a sufficient condition. Spiritual and moral values are the linchpin of sustainable economic systems; when these are ignored, collapse follows, sooner or later. In this connection, I am reminded of the strongly-held views of Daniel Swarovski. Daniel Swarovski was the chairman and chief executive officer of the Swarovski group - one of the most important industrial enterprises in Austria and makers of high-quality optical instruments and crystal glasses. Swarovski declared that those who say that one should leave God out of political and economic questions are absolutely wrong. He wrote that, on the contrary, all attempts to solve the problems of the present time while ignoring or excluding divine forces, or worse still, opposing them knowingly or ignorantly, are doomed to failure. "Without duly respecting God and His Forces, there are no permanent solutions … political problems, including socio-political questions can only be solved if the laws of life are observed, and the laws of life are God's laws" (The Time is Ripe: Reflections, Essays, and Lectures. Innsbruck, Sieben Quellen Verlag, 1981, p. 229). The good news is that there is a growing recognition of this fact, and in recent years many conferences and symposia have been organized on the integration of corporate culture and spirituality.