Monday, January 26, 2004

MORALITY AND THE MARKET

Times of India, Jan 25, 2004

A general election resembles an approaching surgery — it has a way of crowding out all other thoughts from the mind. It also has a way of focusing our politicians' minds on free giveaways and of forgetting a dozen years of economic reform.

One leader confessed last week that he believed in competitive markets but defending them during his campaign would result in losing his deposit.

Our animus against Capitalism may have diminished after Communism's fall and some Indians may increasingly believe that markets do deliver greater prosperity, but most of us still think that Capitalism is not a moral system. We continue to believe that morality must depend on religion.

This is a mistake, for human self-interest can go a long way to ensure good behaviour. A seller who does not treat his customers with fairness and civility will lose market share.

A company that markets defective products will lose customers. A firm that does not promote the most deserving employees will lose talent to its competitors. A buyer who does not respect the market price will not survive.

Lying and cheating will ruin a firm's image, making it untouchable to creditors and suppliers. Hence, free markets offer powerful incentives for ethical conduct, backed by state institutions that enforce contracts and punish criminal behaviour. You don't need religion for morality.

Why are there so many crooks in the marketplace? The answer is that in every society there is a natural distribution of crooked people, and the market has its share of them, which is why we need effective regulators, policemen and judges.

We should design our institutions to catch crooks and not harass innocent people as we do too often.

Some Indians believe Capitalism has been forced on us by the imperial West. This too is a mistake. Friedrich Hayek, the Noble laureate, called the market a spontaneous order — it is natural for human beings to exchange goods and services and in the process every society evolved money, laws, conventions and morals to guide behaviour in the marketplace.

These are natural products of human endeavour and were not created by God. Nature's morality in the marketplace begins with idea of freedom, the freedom of the individual to choose to buy or sell any product, or get a job of one's choosing.

Both competing and cooperating also come naturally in the market economy. David Hume pointed out that even two farmers, who do not particularly like each other, will cooperate when it is in their interest to do so. Teamwork is so vital in modern enterprise since everyone is inter-dependent.

I think people are suspicious about Capitalism because they mistake self-interest of the market for selfishness. A selfish person transgresses on the rights of others, but self-interest is not a social attribute and can even be practised on a deserted island.

For example, if it rains, I will carry an umbrella. Nothing selfish about that. This is why Adam Smith called our desire to buy cheap and sell dear as rational self-interest.

In the Theory of Moral Sentiments, he said that what is rational is not only from the viewpoint of the person involved but also from that of a disinterested observer.

Like it or not, India is headed in the direction of democratic Capitalism, and every time an election rolls around, it is our duty to punish those who announce free giveaways and reward those who educate the electorate about liberal institutions like the market.

This is how we shall conquer the pervasive poverty that has characterised the lives of the majority of our people in history.

4 comments:

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Hence, free markets offer powerful incentives for ethical conduct, backed by state institutions that enforce contracts and punish criminal behaviour.

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