Leading financial thinkers are beginning to question the value of free market capitalism. It seems as if the worlds brightest CEOs and politicians are taking sides in support of or to criticize the concepts of ‘capitalism’ – which is at the bedrock of the current financial system of the US and most of the world.
Capitalism, as defined by www.wikpedia.com is,
"Capitalism generally refers to an economic and social system in which the means of production are all or mostly privately owned and operated for profit, and in which investments, distribution, income, production and pricing of goods and services are determined through the operation of a market economy."
The idea is basically to allow people to invest, produce and sell products resulting in a profit or loss as determined by supply and demand with little government intervention. Free market capitalism has been gaining acceptance and spreading around the world since the Great Depression of the 1930’s and has served the US very well.
Government bailouts are a direct intervention into the free market. Government bailouts will eventually cause more harm than good, because they will only delay the market corrections that need to happen. The sooner that markets correct, the sooner the economy will begin to grow. Government intervention will only slow the process.
So why did capitalism fail?
Chuck Colson wrote a very good article explanation the weakness of free market capitalism on this website, http://www.breakpoint.org/listingarticle.asp?ID=7349. The weakness of capitalism is that it MUST be coupled with moral restraint. Without moral restraint, which requires a set of moral beliefs that determine right from wrong, people will abuse the freedom of free market capitalism by allowing greed to overtaken their actions. Chuck Colson used the example of Goldman Sachs recent selling of Mortgage backed securities while betting against them. Goldman Sachs willingly sold Mortgage securities – while betting their own money against them.
Without moral restraint, there is no reason to uphold honest business practices and therefore no real basis for investor confidence, other than regulations and other legal action. The housing crises will surely lead to a title wave of lawsuits and government regulations. Businesses will need to raise prices as they deal with the increase in legal fees, new government regulations and higher borrowing interest rates – which will further burden the economy as consumers pay for all of this with higher prices (inflation).
Free market capitalism can thrive IF corporations and individuals exercise moral restraint. When those restraints fail, government regulation is sure to follow, which converts free markets into restrained markets and reduces the prosperity of the entire economy. The US has been in a moral decline since the 1960’s – as noted by the climbing divorce rate and declining regularly Church attendees. According to a Gallup Poll in 2003, 75% of adults and 90% of teens do NOT believe in absolute truth. It looks like we are finally going to have to pay for our sins.
The Value of Honesty
“Thou shall not lie” states the commandment. But in today’s culture, fewer and fewer people seem to believe that this idea is worth living by.
What’s the harm in a little lie?
Businesses flourish when honesty is upheld in a society, which in turn provides long-term predictable profitable growth and prosperity. On the other hand, when businesses embrace dishonesty, they have to spend a lot of money to protect them from getting cheated. The more dishonest the people are, the more money that gets spent on fraud protection systems like identification systems, cameras, security personnel, etc.-which translate into higher prices, less profits and lower paying jobs.
The country of Russia is a good example of this. Billions of dollars have been given to Russia over the last decades (following the Cold War and the collapse of communism) to rebuild its economic structure to support its people. But because the majority of their leading businesses are corrupt with dishonesty, they have been unable to build a stable economic structure and the majority of people continue to live in poverty.
Honesty is one of the foundational cornerstones of the America business infrastructure and has been a primary factor in our prosperity – until recently. The recent corporate executives at Enron and WorldCom that have ‘lied’ about their company profits in order to boost stock prices and allow them to enjoy large bonuses, is evidence the American business infrastructure is abandoning ‘telling the truth’.
Larry Burkett, in his book, “Financial Parenting”, page 44, has this to say about lying.
"Lying destroys the trust others have in us … which results in damaged relationships and reduces opportunities. It also complicates our lives and leads us into deception as a way to keep everything else going. In addition, we end up thinking that others, like ourselves, are lying and deceitful."
Now let me ask you that question again. What’s the harm in a little lie? Raising a generation of young people that live by ‘Thou shall not lie’ takes years, while dishonesty can quietly break down trust and lead to many barriers. Let me translate that into money.
The economy as we know it depends on honesty – the more honesty, the more high paying jobs. Just as the Bible says, “Dishonest money dwindles away” - Proverbs 13:11
Business Is Fundamentally Good
Is the coming economic downturn, many opinions about who is to blame will surface, and as in the Great Depression, many fingers will point at ‘Big Business’. Business is about leverage and big business is about big leverage, which can be used to hurt or help people. But, business by itself cannot be blamed, just as a gun cannot be blamed for killing someone.
Wayne Grudem has written an interesting book about this very subject call, “Business For the Glory of God”. He explains how business is one of the best places to server people and God. In the introduction, Wayne writes about when most students ask, “How can I serve God with my life?” They are rarely told, “Go into business”. But that is exactly what Wayne says they should be hearing.
Wayne goes on to explain how the primary aspects of business provide some of the best ways to serve others. In the chapter on Productivity, Wayne explains,
“.. Such desires to be more productive represent God-given desires to accomplish and achieve and solve problems. They represent the God-given desires to exercise dominion over the earth and exercise faithful stewardship so that we and others may enjoy the resources of the earth that God made for our use and for our enjoyment. .. Work in itself is also something that is fundamentally good and God-given, for it was something that God commanded Adam and Eve to do before there was sin in the world.”
In the chapter on Employment, Wayne explains,
“.. When the employer/employee arrangement is working properly, both parties benefit. This allows love for the other person to manifest itself” (Matthew 7:12).
In the chapter on Profit, Wayne explains,
“The ability to earn a profit thus results in multiplying our resources while helping other people. It is a wonderful ability that God gave us and it is not evil or morally neutral, but is fundamentally good. Through it we can reflect many of God’s attributes, such as love for others, wisdom, sovereignty, and planning for the future.”
Wayne goes on to talk about how both being rich and being poor bring many temptations. The rich are tempted to be proud, to be selfish, to think too highly of themselves, and not to trust God—while the poor are tempted to covet their neighbors possessions, to be lazy, not follow through with the work that God has for them, and to blame God for their misfortune.
At the end of each chapter, Wayne also explains how each aspect of business could also be used to sin. Each day business carries many temptations to abuse the disciplines of business and use them to harm or oppress someone else.
All in all, Wayne has put together a fantastic book, showing that business is a good thing and cannot take blame for the current financial crisis. If the real problem is greet, selfishness and dishonesty, than this conclusion leads to an unlikely source of the problem. The global financial crisis – brought about by the financial crisis in America – was caused by a lack of morality, which has been deteriorating for decades.
Is Search of a Miracle
Once this has been discovered by the majority of the population, what is likely to happen? Will a large number of people return to Church, as they did after 911? Will laws that have been passed to reduce morality or the influence of God in America get overturned as public sentiment grows? Will abortion be overturned? Will prayer and the Bible be allowed back into the public schools?
Over the next few years, the growing financial crisis could turn America back to God, as people look for a miracle to save them from their financial burdens.
If this happens, a cultural battle will soon follow, as the population returning to God will find themselves on the opposite side of the current immoral and atheistic generation – that has been produced by decades of post-modern and evolutionary teachings. The atmosphere will create a large division within America, and as it intensifies, more and more people will get pulled into the debate and forces to take a side. It will become harder and harder to hold a neutral position on the issue. A religion based division of this magnitude coupled with a major recession, will likely lead to social unrest, riots and an increase in hate crimes.
At the end of the day, free market capitalism shouldn't take the blame. Business is fundamentally good; it's the people that have gone astray.