20040312_austrian_economics_and_business_ethics

The collapse of communism and the reduced appeal of even the more moderate forms of socialism has not brought an end to the criticism of capitalism, though the attacks now come from a different source. It is not the alleged science of Marxism that provides the intellectual armoury but morality, something that Marx himself would have despised. For all its success in creating jobs and prosperity, capitalism normally fails the moral test. It is governed by greed, creates unacceptable inequality and social exclusion and destroys the environment; and global capitalism and free trade hinder the development of the Third World. The cause of capitalism has not been helped by well-publicised business scandals. I shall argue that it does not the fail the test of conventional Western morality, though criticism of certain practices are always appropriate, but only the demanding standards of contemporary business ethics, which if fully adhered to, would destroy the efficiency of capitalism. Such things as the 'social responsibility of business', the persecution of inside traders in the stock market and the moral attack on the takeover mechanism reveal a defective understanding of the nature and limits of morality as well as an abysmal knowledge of business enterprise. I shall take Austrian economics as my intellectual lodestar because not only does it provide the most persuasive defence of capitalism in the free market tradition but some of its leading practitioners, especially Ludwig von Mises and Friedrich von Hayek, wrote extensively on ethics and political theory.

As we know, there is not one type of capitalism but a variety of economic systems that embody property, the profit motive, and the law of contract and tort. Although all capitalist systems work better with limited government it is by no means inconceivable that the free market system could operate with various forms of authoritarianism: it occasionally does, think of China. Some of these differences relate to ethics, or at least are reflective of distinct moral cultures. Anglo-American (or Anglo-Saxon) capitalism is distinguished by its individualism, utilitariarianism and anti-statism.

By adopting such a minimalist ethic, Anglo-American capitalism could exploit the division of labour, develop flexibility and remain open to change and innovation via entrepreneurship. This ethic might be minimal but it is still an ethic. In fact in the absence of such generalised and internalised rules the policing costs of a capitalist system would be excessively high. Although these minimal ethical features are descriptive of all capitalist systems they predominate in the more individualistic and less regulated Anglo-American model. Modern business ethics, with its hostility to individualism, invocation of the community as a source of value not revealed by the market and desire to impose a more expanded notion of morality on market traders, has a vision of the economic system redolent of a pre-industrial, agricultural society in which people were held together by social bonds rather than by efficiency-inducing rules of exchange, especially contract. Such communalism is also productive of great rigidity.

footnotes

[1] See Jeremy Bentham, An Introduction to the Principles of Morals and Legislation, ed. J. Burns and H. L.A. Hart, London, Athlone Press , 1970.First published 1789. A more persuasive doctrine of utilitarianism is in the earlier David Hume's An Enquiry into the Principles of Morals, Chicago, Open Court, 1930, section 5. First published 1751.For a contemporary view of Humean morality, see Norman Barry, 'Political Morality as Convention, Social Philosophy and Policy vol. 21 (2004), pp. 266-92.