Markets and Morality

It’s time to champion capitalism’s extraordinary successes

The two economists Hayek and Keynes agreed on one thing. They both believed that ideas and the climate of opinion determined how politicians behaved. Indeed, the Institute of Economic Affairs was set up as a result of advice from Hayek. He told Antony Fisher that a body was desperately needed that would change the climate of opinion in Britain to promote the benefits of economic freedom, markets and stable prices.

This advice is still pertinent. Both Labour and Conservative politicians seem trapped by the prevailing wisdom that dictates that there needs to be more regulation and increased government spending and control of the economy. Few politicians are putting forward policies that suggest they believe that freedom and free markets really matter for prosperity and the quality of life.

It appears that politicians, civil society leaders and teachers are trapped in what philosopher Stephen Pinker described as the “psychology of moralisation” whereby people pretend that things are much worse than they are because it makes them look morally virtuous. On the other hand, to trumpet how global capitalism has begun to transform the world for the better makes people look morally disengaged and apathetic about the problems that remain.

It is this outlook which helps dictates the climate of opinion and thus, in turn, determines how politicians behave. Those who believe in a free and prosperous society should make the case for economic freedom, but they face an uphill battle.

And what is this case? For many in the world, the extension of globalisation has literally been a matter of life and death. In 35 years, the proportion of the world’s population that is living in extreme poverty has fallen from 44 per cent to 10 per cent. The global middle class is growing rapidly.

Good policy depends on a well-informed population. The contribution of business to the formation of the intellectual climate is important. Businesses have a social responsibility to ensure that they do not promote policies that lead to increased regulatory protectionism to reduce competition and, it can be argued, to ensure that the population in general – and opinion formers in particular – understand the importance of a free economy.

To that end, the IEA is sending our educational text, ‘An Introduction to Capitalism’ to all FTSE 350 CEO’s today, to help encourage them to make the moral and intellectual case for free-markets. After all, it is the process of globalisation and the development of something closer to a market economy that has promoted global prosperity. It is inhibitions on the operation of the market economy at home that means that income growth is stalling. Those who really care about the wellbeing of the people should be making that case.

This article first appeared in CapX. 

Philip Booth is Senior Academic Fellow at the Institute of Economic Affairs. He is also Director of the Vinson Centre and Professor of Economics at the University of Buckingham and Professor of Finance, Public Policy and Ethics at St. Mary’s University, Twickenham. He also holds the position of (interim) Director of Catholic Mission at St. Mary’s having previously been Director of Research and Public Engagement and Dean of the Faculty of Education, Humanities and Social Sciences. From 2002-2016, Philip was Academic and Research Director (previously, Editorial and Programme Director) at the IEA. From 2002-2015 he was Professor of Insurance and Risk Management at Cass Business School. He is a Senior Research Fellow in the Centre for Federal Studies at the University of Kent and Adjunct Professor in the School of Law, University of Notre Dame, Australia. Previously, Philip Booth worked for the Bank of England as an adviser on financial stability issues and he was also Associate Dean of Cass Business School and held various other academic positions at City University. He has written widely, including a number of books, on investment, finance, social insurance and pensions as well as on the relationship between Catholic social teaching and economics. He is Deputy Editor of Economic Affairs. Philip is a Fellow of the Royal Statistical Society, a Fellow of the Institute of Actuaries and an honorary member of the Society of Actuaries of Poland. He has previously worked in the investment department of Axa Equity and Law and was been involved in a number of projects to help develop actuarial professions and actuarial, finance and investment professional teaching programmes in Central and Eastern Europe. Philip has a BA in Economics from the University of Durham and a PhD from City University.

1 thought on “It’s time to champion capitalism’s extraordinary successes”

  1. Posted 07/12/2018 at 14:13 | Permalink

    It is very well to suggest that the case the market economy should be made anew, but the fact of the matter is that this Government’s rhetoric on free markets spouted by the governing elite is completely at odds with its policy, as applied on the ground.

    Consider, for a moment, the market for military equipment.

    The clear message behind the Government’s defence procurement policy is that defence equipment for the UK Armed Forces is to be purchased through fair and open competition – the only exceptions being off-the-shelf purchases and single-source development contracts.

    This is to be achieved by selecting the preferred Prime Contractor from a choice of industry teams by running a multiple-phase, winner-takes-all competition on the basis of a level playing field, genuinely open to all-comers including non-domiciled suppliers – to ensure it gets the very best value for money for the taxpayer.

    However, the ‘sudden death’ competition (which abruptly reduces the field of Bidders from six to one following a one-off release of the invitation to tender) currently used by MoD has been rendered ineffective by Defence Contractors, who are quoting identical bottom-line Selling Prices against the same Requirement – which amounts to price-fixing on a grand scale, with the active connivance of the Secretary of State for Defence. See this illustration This is completely at odds with protecting the MoD’s commercial interests, which is what Ministers are so fond of telling the public. Worse still, MoD’s Project Team Leader at Abbey Wood, Bristol is being denied the opportunity to choose the single Prime Contractor on the basis of price competitiveness, and therefore value for money.

    This has come about because MoD’s long-standing policy of disclosing the total budgeted expenditure figure or associated year-on-year financial funding profile in the ITT has resulted in Defence Contractors quoting identical bottom-line Selling Prices in their ITT responses – an entirely predictable result!

    How stupid can you get?

    It is not for MoD to tell the Private Sector what the price of a new equipment programme should be. Instead, it is very much the business of Defence Contractors to tell MoD how much each new equipment programme will cost, based upon the prevailing value of goods, services, labour and finance in the free market shaped, not by the interfering hand of people in the pay of the State who always get it wrong, but by competitive market forces.

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