The moral crises of free market capitalism

On the free market it is legal and customary to violate the dignity of our fellow human beings.

Photo Credit: Olivier Le Moal/Shutterstock.com

The following is an excerpt from Change Everything: Creating an Economy for the Common Good by Christian Felber (Zed Books, 2015).

When I ask students attending my lectures at the Vienna University of Economics and Business what they understand human dignity to be, I frequently encounter a general, awkward silence. The students do not appear to have heard or learned anything about it in the course of their studies. This is all the more alarming considering the fact that dignity is the highest value: it is the first-named value in countless constitutions and it forms the basis of the Universal Declaration of Human Rights. Dignity signifies value: the same, unconditional, unalienable value of all human beings. Dignity requires no “achievement” other than existence. It is from the equal value of all human beings that our equality derives – in the sense that all human beings living in a democracy should have the same liberties, rights and opportunities. And only if everyone really does have the same liberties is the condition fulfilled for enabling everyone to be really free.

Immanuel Kant wrote that human dignity can only be preserved in daily life and interactions if we deem and treat each other as being of equal value: “So act that you use humanity, whether in your own person or in the person of any other, always at the same time as an end, never merely as a means.”

By contrast, on the free market it is legal and customary to instrumentalize our fellow human beings, violating their dignity because our goal is not to protect it. Our goal is to gain personal advantage, and in many cases this can be achieved more easily if we take advantage of others and violate their dignity. What is decisive is my attitude and my priority: am I interested in the greatest good and the preservation of the dignity of all, which is something which affects me automatically and which I benefit from as well, or am I primarily interested in my own welfare and my own advantage, which others might, but will not necessarily draw benefit from? If we pursue our own advantage as our supreme goal, the customary practice is to use others as means to achieve this goal and to take advantage of them accordingly. For this reason, Smith’s perversion of goal and by-product leads to widespread violations of human dignity and the systematic restriction of the liberty of many.

Trust Is More Important than Efficiency
If we must constantly fear that our fellow human beings will take advantage of us in the market as soon as they are in a position to do so, something else will be systematically destroyed: trust. Some economists say this doesn’t matter because the economy focuses completely on efficiency. But such a view must be disputed, for trust is the highest social and cultural good we know. Trust is what holds societies together from the inside – not efficiency! Imagine a society in which you can trust every person completely – would that not be the society with the highest quality of life? And imagine the opposite, a society in which you had to mistrust everyone – would that not be the society with the lowest quality of life?

The interim conclusion to be drawn is radical: so long as a market economy is based on pursuit of profit and competition and the mutual exploitation that results from it, it is reconcilable with neither human dignity nor liberty. It systematically destroys societal trust in the hope that the efficiency it yields will surpass that achieved by any other form of economy. When such matters are pointed out to mainstream economists three familiar responses are commonly elicited:

1. There is no alternative to the market economy; this is common knowledge and thus all further discussion is unnecessary.

2. Whoever does not acknowledge this wants to catapult society back into poverty and the nineteenth century or drive it straight to communism, and we all know how that ended.

3. The market economy is the most productive form of economy there is; history has proved this. Competition spurs human beings to the highest levels of performance – this is in addition to the fact that it is rooted in human nature and is thus unavoidable.

We need to take a closer look at this last fundamental myth of the market economy: “Competition is in most cases the most efficient method we know,” writes Nobel Prize laureate for economics Friedrich August von Hayek. If a “Nobel Prize laureate” says this, it must be true – although there is no Nobel Prize for economics. I have tried to find the empirical studies which led Hayek to this insight but I have found none.

I explored other economists as well, for in the scientific community it is customary for colleagues to cite each other. And yet I found nothing here either. None of the economists who have won a Nobel Prize have ever proved through a study that “competition is the most efficient method we know”. This cornerstone of economics is a mere claim which is believed by the large majority of economists. And capitalism and free enterprise, the world’s dominant economic model for the past 250 years, is based on this belief. Regarding the crucial question, does competition create stronger motivation than any other method? a plethora of studies have been conducted in numerous disciplines (educational science, social psychology, game theory, neurobiology) 369 of which studies were evaluated in a meta-study. And of those with a clear result an amazing majority of 87 percent found that competition is not the most efficient method we know; cooperation is.

... If honest economists actually wanted to build the market economy on the basis of “the most efficient method” there is and they took notice of the current state of scientific research, they would have to base it on structural cooperation and intrinsic motivation. The fact that mainstream economists do not do this is an indication that science and insight play no role here but rather what dominates is the desire to underpin existing hegemonic structures ideologically.

Those with power are served very well by competition: if we, as human beings, do not learn to cooperate and act in the spirit of solidarity we will not call power relations into question but rather will attempt, instead, to elbow our way into the realm of power and the social elite. In doing so, the majority will fall by the wayside. And the social climate will be poisoned to ever-increasing degrees because we will constantly take advantage of others, exploit and debase them in the pursuit of our own advantage, weakening and destroying trust and social bonds.

The Consequences of the Pursuit of Profit and Competition: The 10 Crises of Capitalism
Contrary to the prognoses and promises held out by the theory of free enterprise, the pursuit of “self-interest” as the supreme goal of competition leads to the following:

1. The concentration and misuse of power. The system-immanent pressure for growth – the pressure to become ever larger and more powerful and to ultimately obtain the status of a “global player” – leads to the emergence of gigantic corporations which misuse market power, close off markets, block innovation, and devour competitors or push them out of the market. In using such phrases as “brimming war chests”, “hostile takeovers” or “kill your competitors”, the market idiom reveals what is ultimately at stake when it comes to the pursuit of one’s own advantage.

2. Suppression of competition and the building of cartels. Once only a few players are left, adversarial conflict can suddenly turn into tactical, but not intrinsic cooperation. For the objective remains the same: maximum profit. If power allows the formation of cartels and oligopolies then preference will be given to this strategy because it is more effective than competition. Competition produces losers; cooperation produces only winners. This is why branch enterprises cooperate as soon as they can (this being inadvertent and unappealing proof of the superiority of cooperation – unappealing because in this case cooperation is not a goal but rather a means of achieving a wrong purpose, namely to take advantage of others). The recent bank bailouts show that the present economic model is not a matter of competition and free enterprise at all but rather of (governments) securing profits and power: this is the reason why the business and political elite cooperate and eliminate the competition – competition evidently not being the objective after all.

3. Competition between locations. States systematically try to attract enterprises and improve conditions for the pursuit of profit; the consequences are wage dumping, social dumping, fiscal dumping and environmental dumping, preferential treatment of global corporations over small local companies, and enticing special offers such as banking secrecy and removal of banking supervision because these are viewed as “locational advantages”. If the egoism of enterprises infects states, nationalism will flourish in the midst of alleged “globalization”.

4. Inefficient pricing. Prices are often not the rational result of the activities of rational market participants but rather the expression of power relations. The power created by supply and demand is often very unequally distributed, which is why prices often reflect the interests of the powerful rather than actual costs or values. The care of children, sick persons, the elderly and gardens often is not rewarded financially at all, for example, whereas the maintenance of hedge funds is often astronomically expensive even though they have a negative impact on society.

5. Social polarization and fear. The market economy is a power economy. The larger – the more global – “free competition” is, the greater will be the imbalance of power between the protagonists, and with it the inequalities and the gap between the rich and the poor. In the USA the best-paid manager now earns 350,000 times the legal minimum wage. This has nothing to do with “rational pricing” or with efficiency or justice: it is exclusively a matter of power. As a result, trust in society is declining and fear is rising. In the USA, trust among people has declined from 60 percent in 1960 to less than 40 percent in 2004. The German Anxiety Index has risen from 24 percent in 1991 to 45 percent in the past few years.

6. Failure to satisfy basic needs and reduce hunger.The explosion in the numbers of the famine-stricken shows how little globalized market capitalism is capable of satisfying even basic needs and thus protecting human rights. In the early 1990s hunger affected fewer than 800 million people, but in 2009, the Food and Agricultural Organization of the United Nations (FAO) reported that 1.023 billion were affected; between 2011 and 2013 the figure dropped to 843 million. Satisfaction of basic needs is not the goal of capitalism; maximizing profit is. In many cases this leads to a situation in which basic needs that have no purchasing power are not met (with nutrition coming first, followed by medical care, housing and education), whereas purchasing power for which no need exists requires the “invention” of new needs (for example addictive foods, cosmetic surgery, SUVs). Capitalism systematically misdirects creativity and investments.

7. Ecological destruction. Since the supreme goal of capitalism is to increase financial capital (and not the common good), other goals such as environmental protection slide down the list of priorities. In its Millennium Synthesis Report the UNO ascertained that the health condition of almost all planetary ecosystems (oceans, fields, rivers, mountains, forests) deteriorated between 1950 and 2000. They are approaching their breaking point and sooner or later they will collapse. Then the “performance” of those ecosystems which are necessary to sustain human life will be in danger, impacting on climate stability, the regulation of humidity and temperature, the control of diseases and vermin, soil fertility and absorptive capacity. Capitalism is destructive because it strives blindly to increase financial capital rather than the natural foundations of human life and the economy.

8. Loss of meaning. Since the objective of capitalism is to accumulate material values, it quickly overshoots the side effect of satisfying basic material needs, subjugating all other values – quality of relationships and environment, time prosperity, creativity, autonomy – in the process. In the EU, working hours increased again by 8 percent between 1995 and 2005. According to a poll conducted by Gallup, in the USA 70 percent of American employees are unengaged with their workplaces or even actively disengaged. More and more people become increasingly alienated from their true desires and ideals and instead become addicted to consumption. With 24 million individuals affected, the compulsion to shop has become a pandemic in the USA. In Austria, almost half of young people aged between 14 and 24 years are “significantly at risk of becoming shopping-addicted”, with 10 percent “strongly endangered”. This is a kind of success in capitalist terms: the US economy invests more than $11 billion in its publicity attack on children.

9. Erosion of values. In today’s business world the most antisocial people make it to the top because what counts is optimization of monetary targets: people who are “more able” to filter out all other human, social and ecological goals are culturally “selected”. Today egoists are particularly able to be “successful”. If the business world systematically rewards egoism and competitive behaviour and people are viewed as successful if they work their way up in this dynamic of incentives, these values will rub off on all realms of society, starting with politics and the media and ultimately affecting our interpersonal relationships as well. As the German social psychologist Erich Fromm put it, “The capitalistic character shapes the societal character”.

10. Shutdown of democracy. When pursuit of profit and self-interest are the highest goals, business protagonists do their utmost to reach these goals. Not only interpersonal relationships, personal talents and natural resources are used as means to this end: needless to say, democracy is used as well. Since the times of Adam Smith the ethics of “self-interest” have placed this above the common good, the hope being that benefit to the common good will result as a by-product. The reality looks very different, however. Global enterprises, banks and investment funds become so powerful that they succeed in using lobbying, media ownership, political party financing and public–private partnerships to make parliaments and governments serve their particular interests rather than those of the common good. Thus democracy becomes the last and most prominent victim of “free markets”.

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