A smart, young, up-and-coming entrepreneur approached a toothpaste company asking an enormous sum for an idea that would double its sales of toothpaste over the coming year. The company’s executives didn’t want to pay and so dismissed him and consulted with their design team instead. They tried to imagine what the idea could be, but when no one came up with anything, they called the young man back and met his monetary demands. He then handed them a small white envelope with a 4 x 6 card inside. On it was written: Change the tube. Make the hole bigger.
This urban legend forms part of business school lore and challenges a hidden assumption behind capitalism: that individual profit-seeking behavior in an unregulated market produces the common good. In the story, for example, it produces waste (unnecessary consumption increasing demand and thus profits, but at the expense of consumers).
Recognizing the assumptions of capitalism is essential to making it work for us; clarifying them is neither anti-capitalist nor anti-business, but rather highlights the conditions under which the assumptions hold true.
Profit-seeking economic actors can produce the common good in a competitive environment in which entrepreneurial success comes from providing better products and services. They can create jobs and a healthy middle class when labor is strong and thus can demand a dignified wage for its contribution. And they can lift all boats when, as members of a larger political community upon which they also depend, they contribute their fair share to the taxes that sustain it.
If we don’t recognize these conditions, however, our assumptions can get us into trouble. We often hear, for example, that capitalists are job creators and thus not to be messed with. Yet, the creation of jobs, along with a just compensation of labor, isn’t a goal of companies, but rather something that the rest of us hope for as a side benefit of pro-business policies. A company’s only goal is to provide handsome profits for shareholders and salaries for CEOs. In the process, of course, it may give us better goods and services at lower prices and also create jobs with dignified wages. But it may also meet its objectives by providing shoddier goods and services at higher prices while eliminating jobs and paying poverty wages. It all depends upon the larger sociopolitical environment within which it pursues its goals.
One need only recall Alan Greenspan’s testimony before Congress after the economic crisis of 2008. Greenspan, chairman of the Federal Reserve for 18 years and one of the central forces behind de-regulation, admitted that his fundamental economic philosophy was “flawed,” and thus the policies that flowed from it had led to irresponsible and even catastrophic lending practices.
Greenspan needn’t have been so dumbfounded by this realization, however. In fact, the insight that unregulated investors and CEOs would abuse their power and privileges is one well within the traditional conservative wheelhouse. Historically speaking, it was the liberals who counted on human rationality and an enlightened self-interest to magically produce the common good. Traditional conservatives retained a more realistic image of human nature – that it was “fallen” and thus predominantly myopic and self-serving. Thus, institutions and culture – churches, schools, custom and the law – were necessary to help it along.
Edmund Burke wrote, “The restraints on men, as well as their liberties, are to be reckoned among their rights.” Lord Acton warned that “Power tends to corrupt and absolute power corrupts absolutely.” And even F. A. Hayek stated, “Liberty and responsibility are inseparable.”47 comments on this story
The fact that today’s conservatism has glorified the unbridled entrepreneur and the de-regulated financier – trusting them not only with tremendous power and resources, but also to be self-governing – simply demonstrates how un-conservative it has become. A true conservative knows that when the cat’s away, the mice will play.
The blind spot of today’s conservatives, then, is the partial application of traditional wisdom. While it’s clear to them that unrestrained governmental power becomes corrupt and tyrannical, they fail to see that the same is true of concentrated social power. This blindness has been compounded by decidedly un-conservative elements that have entered the movement. Greenspan, for example, was a devotee of Ayn Rand, and it’s hard to imagine a figure further from the thought of Edmund Burke.
Protecting capitalism from the rapacious, however, turns out to be surprisingly pro-business. Without fair rules, opportunity for all and a strong middle-class, we’ve found that capitalism itself flounders.
Mary Barker teaches political science in Salt Lake City and Madrid, Spain.