In a provocative piece,“Government-backed monopolies, an essential part of capitalism,” from Oct. 24, Cal Abbo responded to arguments from both of us about the source of problems in the healthcare industry. We blamed poor government policy; he ultimately blames profit-seeking and, and as a remedy, seems to advocate replacing capitalism. Widening in scope beyond the problems of one specific industry, the debate now addresses a question most fitting for our Hillsdale intellectual community to consider: given the nature of human beings, what is the most suitable economic system?
Abbo takes us to task for implying that all government intervention is necessarily bad for consumers, even though he seems to accept that many existing government policies in the healthcare space are in fact harmful. While we concede that certain kinds of government intervention in principle benefit some consumers, we suspect that the same tangle of special interests Abbo fears in other contexts will succeed in distorting any such efforts.
The benefits, if any, of new intervention will probably come with large costs to the rest of society. That said, we think this is only a sub-debate within a large disagreement. That larger question is: in which direction shall we try to move society — towards a cleaner, more competitive capitalism, or away from economic freedom and towards some kind of alternative?
Without necessarily challenging the advantages of a truly free market system, Abbo thinks that such a system inevitably devolves into crony capitalism. The core moral principle that “profit-seeking is not only acceptable, but even productive and good” is to blame, since it encourages firms to profit by any means necessary, including kneecapping competitors.
We actually think Abbo has a largely correct moral position here. The human desire for selfish gain can indeed harm the common good. But this is a human, rather than a purely capitalist desire.
What we view as the desirable form of capitalism made a moral improvement by placing legal and ethical guardrails around selfish gain. To the extent that these guardrails hold, selfishness is channeled towards “honest profit”— away from predatory and towards mutually beneficial, productive activities. Instead of pirates and kings, we get entrepreneurs who create light bulbs, cars, therapies, nutritious food, and a million other things for satisfied customers.
What are the guardrails? The longer version of the Milton Friedman quote from earlier helps: “the social responsibility of business is to use its resources and engage in activities designed to increase its profits as long as it stays within the rules of the game, which is to say, engages in free and open competition without deception or fraud.”
To these constraints we would add a few others, but the most important is that powerful people must not use political power or be allowed by the rest of society to rewrite the rules of the game in ways contrary to the general good.
Abbo would probably argue that capitalism constantly tends to jump these guardrails and careen towards crony capitalism. Again, we mostly agree. The desirable form of capitalism has never been fully implemented, and the guardrails are constantly under attack. No one can make a monetary profit by defending the system as a whole, but everyone can profit by carving out an exception from the general rules for his or her own narrow benefit. Why not then abandon capitalism and look for some other system that banishes profit?
The problem with such alternatives is not just the loss of profits but the loss of economic freedom. Honest profits, as we defined them, guide business to create goods and services worth more to consumers than the trouble of making them. However, some successful organizations exist for whom monetary profit plays no role or a lesser role — churches, charities, colleges, voluntary collectives such as the Israeli kibbutz, and consumer cooperatives come to mind as examples. As long as people are free to leave such organizations, and are free not to buy products from them, they are perfectly compatible with capitalism.
The real problems come when organizations get captive customers, and sometimes captive workers. How bad things will become then depends on the wider economic and political system, but could range from “mere” sclerosis and inefficiency to the cruelty and criminal incompetence of the communist regimes of the twentieth century, or Venezuela today.
Our real concern with Abbo’s own proposal for customers to run firms is not his dislike of profit. We would fully support anyone’s right to form a consumer cooperative aiming to sell at cost, and in the medical context he cites. But it would be a catastrophe to force every existing firm to become a cooperative selling at cost. The fact that cooperatives are legal, yet produce only a small fraction of output, is a sign that profit-seeking is a more effective way of organizing most economic activity.
The implication is that the government would have to constantly stop people from consensually reorganizing the economic system. And government, as the sole wielder of legitimate violence, is of all monopolies the most dangerous.
Against these difficulties, we set up the capitalist alternative.
Societies embracing even partially-free markets have grown and developed to become the wealthiest in all of history. In Western Europe and the United States, capitalist development transformed frequent hunger, disease, and ignorance from the norm into the exception. The quality and availability of food, medicine, housing, transportation, education, and nearly everything else would astonish an American from 200 or even 100 years ago. And in Asia, even a partial embrace of market capitalism has rescued hundreds of millions of human beings from poverty in little over a generation, first in the Asian Tigers — Singapore, Hong Kong, Taiwan, and South Korea — and then in China and India.
The system, of course, has its problems. In our country, Left and Right will probably never agree on the correct size and nature of the safety net, other kinds of public spending, or regulation in its infinite complexity. But we think that broad agreement is possible on the goal of making capitalism, rather than some alternative, as good as it can be — and that a large part of that project involves assailing crony capitalism whenever possible.
Such a project has another benefit: it could strengthen amity and a sense of common purpose across party, geographic, and class lines. That seems to be a valuable benefit for America in 2019.