In my last posting I argued that the
Bible leads us to prefer the free market, private ownership and enterprise
because it is the economic system that best achieves biblically derived
economic goals. In this post, I will begin to substantiate that conclusion by
showing that it works.
As a starting point for our analysis, I posited
that “as God's stewards, we must develop the world to enable man and creation
to glorify God.” As the parable of the talents implies, that includes
fruitfulness in the economic realm[1].
An economic system has to provide for the material needs of all so that they
can exercise this mandate. Good
stewardship also means that we need to use our God-given resources as
effectively and efficiently as possible. We, as individuals and as society, may
not waste the resources God has entrusted to us. When we, then, evaluate
possible economic systems, major questions to ask are: “Does it work? Does it work efficiently?”
Government economic operation inefficient
Recent world history has made it
perfectly clear that for a command economy the answer to those questions is a
resounding "no". In fact, “all plausible alternatives to capitalism
have now evaporated.”[2] The collapse of the iron curtain has
shown that an economy rigidly controlled by the government led to the
production of "shoes that fit nobody, shoddy workmanship and mostly empty
shelves in the stores." [3] Consumer goods ranging from necessities,
such as food, to luxuries such as cars as well as intermediate goods required
for production are typically in short supply. In fact, it has been argued that
shortages distinguish socialism from capitalism.[4]
North Korea and Cuba still provide vivid examples of this.
Moreover,
enormous losses from bad decisions as well as fraud have bedeviled government
enterprises around the world. A 1995 World Bank publication, for example,
described a Turkish state-owned coal mining company that generated losses per
worker equal to six times the per capita national income, a state-owned power
utility in the Philippines that shut off electricity for seven hours a day in
many parts of the country and a state sugar-milling monopoly in Bangladesh that
employed 8,000 unneeded workers and kept the price of its sugar at double the
world price.[5] Many countries throughout the world
experimented with central planning and nationalization during the 1960's and
1970's in order to promote economic growth and development. But “the dream
proved to be unrealizable”. State companies were less productive and innovative
than the market and turned out to create enormous drains on the treasury and
reduced rather than increased growth.[6]
Moreover,
the governments of the mixed economies of the West have also shown themselves
to be seriously limited in their ability to manage the economy. There is a
growing awareness that governments have a tendency to generate wasteful
bureaucracies and have exceeded the limits of their ability.
The market works
A major
attraction of the free market, on the other hand, is that it works and works
well. If consumers and private businesses are left to make buying and selling
decisions through a freely operating competitive market, the result is much
more likely to approach the biblical ideal of stewardship. The keys to the success
of the market are profit, price and competition.
In a
competitive market system, only those goods which are wanted--both in quantity
and quality--will be produced. Businesses producing unwanted goods will lose
money since no one will buy them--at least not at prices sufficient for the
enterprise to make a reasonable profit. As they see market prices drop,
companies will quickly adjust their output. Similarly, no major shortages will
occur over the longer term; increased demand will drive up prices. The
increased prices will motivate producers to increase production and attract new
producers to the market. As conditions change, the mix of products produced
will, thus, adjust to meet demand. Moreover, the goods and services that are
produced will, by and large, be produced as efficiently as possible and sold at
the lowest possible price. If not, some other company will produce them at a
lower cost and put the inefficient producer out of business. Thus, efficiency is “short-hand for the
elimination of waste” and, as such, promotes good stewardship of the world’s
resources.[7]
When one really stops to think of it, the price system is an amazing thing[8];
we “marvel at the spontaneous ordering that arises in markets—constantly
redirection, renewing, and transforming our precious resources from
less-valuable to more valuable uses.”[9]
Stapleford
concluded that “the economically efficient, wealth-generating performance of
the Western market exchange economies is nothing short of astounding”. Per capita production (GDP) in the market
exchange countries is more than 5 times the average GDP throughout the world,
almost 14 times that in middle-income nations and 73 times the average of the
low-income countries[10].In
fact, Novak suggested that “of all the systems of political economy which have
shaped our history, none has so revolutionized ordinary expectations of human
life... as democratic capitalism”[11]-–lengthening
the human life span, making elimination of poverty and famine thinkable and
enlarging the range of human choice.
Even Marx
and Engels, the spiritual fathers of communism, recognized the material
advantages of capitalism:
The
bourgeoisie, during its rule of scarce one hundred years, has created more
massive and more colossal productive forces than have all preceding generations
together. Subjection of Nature’s forces to man, machinery, application of
chemistry to industry and agriculture, steam-navigation, railways, electric
telegraphs, clearing of whole continents for cultivation, canalization of
rivers, whole populations conjured out of the ground.[12]
Up to the time that Adam Smith,
the founder of modern capitalism, wrote his Wealth of Nations, the
prevailing economic system was mercantilism–heavy on state control and
direction. Famines ravaged the civilized world at least once a generation.
Plagues killed thousands. In the 1780's four-fifths of French families devoted
90 percent of their incomes to buying bread–only-bread–to stay alive. In 1793,
men in France lived 23.4 years, women 27.3 on average. Novak notes.
The
invention of the market economy...more profoundly revolutionized the world
between 1800 and the present than any other single force...In Great Britain,
real wages doubled between 1800 and 1850, and doubled again between 1850 and
1900. Since the population of Great Britain quadrupled in size, this
represented a 1600 percent increase within one century. The gains in liberty of
personal choice–in a more varied diet, new beverages, new skills, new
vocations–increased accordingly.[13]
The market innovates
It should
not be thought that businesses in a market economy respond merely to currently
expressed needs and wants. In order to create a competitive advantage,
businesses also continually search out and develop new innovative products
which buyers may find attractive. It is this drive to adapt and innovate by
entrepreneurs that has created the improvement in our lifestyle compared to
that of a century ago–computers, automobiles, modern plumbing etc. In fact,
D’Souza argues, entrepreneurs have an “uncanny ability to anticipate and supply
what large numbers of people want” and look for solutions to problems that
others see as “life’s necessary inconveniences”. He notes, for example, the
development of the almost instantaneously successful Walkman (since superseded
by the Ipod) by Akio Morito of Sony in response to the plague of noisy
cumbersome boom boxes[14].
Novak characterizes this
innovative spirit as a necessary part of the cultural mandate:
Creation
left to itself is incomplete, and humans are called to be co-creators with God,
bringing forth the potentialities the Creator has hidden. Creation is full of
secrets waiting to be discovered, riddles which human intelligence is expected
by the Creator to unlock.[15]
The market,
then, provides an effective and powerful incentive to discover the
potentialities that lie hidden in God’s creation. Overall then, Christians
should prefer the market system—because it works. Of course, as we have seen in
the last post, the preference must be conditional; we must recognize that when
it does not work adequately, government must step in.
Related Posts
Introduction: Political-Economics as God's Steward
Political-Economics as God's Steward
[1] See John R. Schneider, The Good of Affluence: seeking
God in a Culture of Wealth, Eerdmans, 2002, pp189-191
[2]
Hernando De
Soto, The Mystery of Capital, Basic, New York, 2000, p.13.
[3] Ed Vanderkloet , In and Around the
Workplace, Christian Labour Association of Canada, 1992, p.6.
[4]
Andrei
Shleifer and Robert Vishny, The Grabbing Hand: Government Pathologies and
their Cures, Harvard, Cambridge, 1998, p.109
[5]
Op. cit., p.2
[6]
. Adam Bennett,
“Failed Legacies: Escaping the ghosts of central planning”, Finance and
Development, March 2003, p.22.
[7]
Ian Harper, Christian Morality and Market Capitalism: Friends or
Foes? Acton Lecture 2003, The Centre for Independent Studies, Melbourne,
Nov. 19, 2003, p.3.
[8]
. I would personally
be highly sceptical about identifying in economics specific "laws"
or "ordering" that God might have put into creation. If, however, I
were to speculate about such order in economics, I would certainly pick the
price system as one of the aspects that God has built into this world. A
post-script to Appendix F, in my 1999 book, explores this issue further. In any
case, we know that, instead of Adam Smith's "invisible hand," it is
God that directs all things--also the price mechanism.
[9] Victor V. Claar, “What I
wish theologians understood about markets and the economists who study them,”
Faith and Economics, Fall 2012, p.35.
[10]
John E.
Stapleford, Bulls, Bears & Golden
Calves: Applying Chrisitan Ethics in Economics, InterVarsity Press, Downers
Grove, Illinois, 2002., p.52 (derived from World Bank data).
[11]
Michael Novak,
The Spirit of Democratic Capitalism, American Enterprise Institute,
Simon & Schuster, New York, 1982, p.13.
[12]
Karl Marx and Frederick Engels, The Communist Manifesto, New
York: International Publishers, 1948, pp. 13-14. See Novak, op. cit.,p. 13.
[15]
Novak, op.
cit.,p.39
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