There’s an enabling logic in contemporary American capitalism that has put us where we are today. It goes like this: as a highly-skilled, well-educated member of society, there is in fact an ethical mandate to embrace cupidity and maximize profit to the exclusion of other goals. For, as you’ve been taught, when the most capable members of society are competing against one another in a marketplace with that single-minded purpose, society collectively benefits: consumer prices are lower, investors receive the highest return (meaning the highest retirement income for pensioners and 401k-holders), and technological innovation progresses at the fastest possible clip. By embracing profit, you are helping navigate the ship of humanity with maximal efficiency toward its Enlightenment-style singularity.
But this logic is incomplete. A market that produces these social outcomes is of a very particular structure: it is genuinely competitive. It is the second-order effects of that competitive pressure — the price reduction wars between competing managers, and concomitant cost-squeezing that entails — which actually produce these social outcomes, rather than profit maximization in isolation. Where profit maximization is not accompanied by competition, the social welfare is very simply not served by it.
And the key omitted element of this logic is that a competitive market requires two external forces: (1) effective contract-enforcement in all cases; and, (2) public-minded regulators in most cases. The first nearly goes without saying, but requires a legal system that values the general commercial concern over the specific. The second is derived from the fact that most goods in and of themselves are not of a structure conducive (without some set of external rules) to competition. A well-governed market ruleset that prevents severe dips into such disequilibria as monopoly is required to make competition work for the common good.
It is on this count that we’ve gone horribly off course. When policy influence and regulatory arbitrage became legitimized tools of competition — pursued to the exclusion of cost-cutting, of price reduction — we severed the link between profit maximization and social benefit. When changing the rules of the game became easier than improving under those rules, the market’s utility as social tool failed.
But the incomplete, enabling logic has calcified into ethos for too many. The map from profit maximization to social benefit is a powerful, counterintuitive insight. But at such a very high level of abstraction, it is simply not very useful or accurate. A more transparently absurd analogy would be saying that the big takeaway from medicine is that avoiding medical care will lead to better long-term health. There’s a kernel of truth here: if a person engages in healthy behavior that prevents illness and obviates the need for acute care, then they are more likely to be healthier in the long run. But you can see how this heuristic is terribly unhelpful for guiding the actual decisions people would confront. It’s too general; it doesn’t elaborate upon any of the causal nuances required to actually guide people toward the aim of better health. And the enabling logic of American capitalism today is equally dangerous.
I do not have some tangible policy prescription here, because I think such policies require a very basic level of political buy-in at the ideological level that isn’t feasible until we collectively agree to some very basic points:
- Collective social benefit is the aim of any type of societal enterprise.
- Markets and profit are means to the end of social benefit, not ends themselves.
- Profit itself does not make an activity socially beneficial.
- The burden of proof for social benefit is on those profiting, not society.
- When profit and social benefit are clearly at odds, social benefit should hold primacy.
Putting the cart back behind the horse, I think we just might have a starting point to make capitalism work again in America. And, if we actually put social benefit ahead of profit-as-evidence-of-benefit, who knows? Maybe some engineers and scientists just might get off Wall Street and back to playing the positive-sum games of society.
