What’s wrong with the way capitalism is now? What problems should we try to fix, and how? In this episode of EconTalk, Rebecca Henderson joins host Russ Roberts to discuss her book, Reimagining Capitalism. Henderson argues that the current incarnation of capitalism has become imbalanced.
How should we re-imagine capitalism? Henderson sees no conflict with the free market; it’s just a matter of sensibly getting the rules right. So what are the rules we need? Share your thoughts with us based on the prompts below.
1- Henderson and Roberts each identify what they see as three main problems with capitalism today. How do their lists compare to one another’s? To yours?
2- What’s wrong with corporations’ emphasis on shareholder value, according to Henderson? Are her worries more a consequence of capitalism or crony capitalism? Explain.
3- Think about the examples of Papua New Guinea and Nike. What role SHOULD corporations play in developing or poorly developed countries? Did Nike make the world a better place through their actions? Why does Roberts reference “the seen and the unseen” in this context?
4- Henderson calls herself an advocate of “managing with purpose.” What does she mean by this? Roberts asks her, “If managing with purpose is not only possible, but potentially such a powerful source of competitive advantage, then why doesn’t everyone manage this way?” To what extent are you persuaded by her response?
5- Henderson says her “end state is all about a stronger government in partnership with the private sector.” Should society as a whole set guardrails which constrain what firms can do, as Henderson advocates? If so, what should they be? What do you think of the role Henderson suggests for “purpose-driven firms” in leading this process?
READER COMMENTS
SaveyourSelf
Jun 13 2020 at 8:08am
“How should we re-imagine capitalism?”
Capitalism is a tool for rationing scarce resources using individual property rights and individual freedom to make rationing by individuals possible.
Capitalism maximizes the potential for competition. Competition—large numbers of buyers and sellers—is the most reliable force known for lowering prices. Lowering prices increases the standard of living for everyone in society. What is more, competition, though not moral in and of itself, produces moral outcomes in the setting of individual freedom and individual property rights. Competition rewards efficiency and creativity while simultaneously punishing deception, racism, and shoddy workmanship, among other things. Thus capitalism is a morality-maximizing machine, which, for some people, is its most attractive feature. It brings out the best in people.
Additionally, since most knowledge is local, dispersing rationing power to individuals empowers those with the most local knowledge regarding their local resources with the ability to manage those resources (and only those resources), making capitalism the most efficient and intelligent rationing tool possible.
Furthermore, Capitalism utilizing individual property rights in the setting of individual freedom is scientific. Entrepreneur’s inventions are rightly thought of as hypotheses. These hypotheses are tested against each other in real time in the court of public opinion. Some hypotheses are discarded, others modified, and the tests are run again. Over and over they are run, creating a reliable testing environment that demonstrates natural selection. The best scientific studies are randomized, placebo controlled, double blinded, prospective, and reproducible. Capitalistic market competition is prospective, placebo controlled, and repeatable. So, although markets are not ideal scientific instruments, they are not bad.
Moreover, capitalism is an engine of peace. Trade creates mutually beneficial relationships. Mutually beneficial relationships, or more specifically the possibility of additional mutually beneficial relationships in the future, act as a potent deterrents of violence, deception, and theft. Severing trading ties is a recipe for war. Creating and maintaining trading ties is a recipe for peace. Capitalism maximizes the number of trading ties possible by maximizing the number of traders possible.
Capitalism—reimagined—is peaceful, intelligent, scientific, moral, and efficient.
Amy Willis
Jun 16 2020 at 8:22am
That last line so so lovely!
SaveyourSelf
Jun 13 2020 at 9:14am
“What’s wrong with the way capitalism is now?”
The people who are necessary for capitalism to function don’t know what capitalism is, when it is present or absent, why they would want it to survive, or how to make it thrive. They don’t know how it compares to other rationing tools like rationing by votes or rationing by representatives elected by votes or even rationing by dictators. They don’t understand the purpose of government or its limitations or how government impacts capitalism. In short, the typical market participant knows nothing of capitalism. Ignorance, therefore, is what is wrong with capitalism now.
Amy Willis
Jun 16 2020 at 8:23am
@SaveyourSelf, I think that’s right. But then, what’s the solution? How do we keep people from trying to reform (or even tear down) what’s working, even though they can’t see it? Is education the answer? I suspect you and I both have a soft spot for that answer… but after this many years, I can’t help but wonder at least a little if that’s futile. What do you think?
SaveyourSelf
Jun 13 2020 at 1:37pm
(I’ve been pondering this question for years. I still need help with it, but here is my best answer:)
1. Basic human rights: a) All human beings have a right to self-defense, including defense of property. b) Own Private Property Rights: Humans who are mentally competent may own property. Ownership implies the right to manage, alter, or trade said property. c) Have an opinion. d) Free speech. e) Practice religion.
2. Citizenship: Citizenship is a contractual agreement with other citizens entered voluntarily after achieving competent adult status. Terms of Citizenship: 1. Withhold actions that cause physical harm to other citizens. (justice) 2. Help other citizens who are threatened with physical harm defend themselves (common defense pact).
3. Additional right of Citizens: a) Own weapons. b) Vote.
4. Government: Citizens who specialize in meeting the obligations (duties) of citizenship on behalf of other Citizens in exchange for goods, services, or currency. Rule of law restraints on Government: a) Government employees remain citizens and are not above or exempt from the tenets they enforce. b) No government policy may exist that conflicts with basic rights for all humans and including the rights of citizenship when dealing with citizens.
SaveyourSelf
Jun 19 2020 at 8:20am
Amy. I’ve thought about your question for several days and I’ve failed to come up with an answer I thought sufficient to satisfy. The best I can do is think out loud (figuratively speaking).
A major problem, as I see it, is that knowledge is different than what I thought growing up. I had previously believed that once you knew a fact, you knew it. And then you could apply it with the other facts you knew to make reasonable predictions of what would happen in the future. And maybe that is true. But now that I’m older, one of the facts I know for certain is that human remembering is highly flawed and forgetting is rapid and nearly absolute. And that is a problem because I propose ignorance as an explanation for the problems of capitalism. But it seems we are designed to be ignorant! The exception to the memory dilemma that I am aware of is information frequently repeated or information associated with strong emotions. Those things we seem to remember longer and more accurately.
I feel like other people don’t understand economics or capitalism; government or freedom. I feel like I understand those concepts better than most. But I listen to Econtalk weekly, read economic articles for pleasure, and write on the subject every chance I get. I’m immersed in economics daily. That repetition leads to some remembering and facility with the subject matter. The few times I drifted away from Econtalk for several months at a time to pursue writing books, I noticed a considerable loss in my capacity to reason, argue, and relate when I returned.
So what I am getting at is that if you and I and others think that freedom and justice hold penultimate moral positions relative to other values, and we need a large number of other people to hold the same opinions in order for the system we call civilization or work optimally, then at least two things must happen. First we need to agree on what is important. Economists–macro economists in particular–are all over the place with regards to what matters. A consensus among economists on at least the most basic fundamentals necessary to secure a healthy civilization would be incredibly helpful. Second we need to expose everyone to those basics repeatedly and forever. Because we know that having a roomful of immensely well-read people forging a single document in 1776, which is an exceptional positive outlier in all of world history, which theoretically divides and disperses and restrains government, which has made the US the economic powerhouse of the world, is inadequate. Expert opinion, even when they get it right, isn’t enough. Clearly, success is not its own marketing strategy.
My simple explanation for the failures of the US Constitution is that the people who purportedly execute its dictates are not aware of its content. Or, if they are, they are not bound by those dictates—ie. they suffer no consequences when they violate its precepts. In fact, they are rewarded handsomely when they do.
But not everything is bleak. The problems of forgetting and memory distortion, once understood, give us a strategy for dealing with them. Notably repetition and strong emotional appeal.
I see a lot of classical liberal ideas in the general media and entertainment every day. Movies about superheroes upholding justice and opposing violence are common and popular. A lot of people listen to Econtalk. Fox news, for all its many faults, sometimes communicates solid classical liberal concepts. Facebook flames about the importance of freedom or rants against oppressive government policies are not uncommon. Some states have elected libertarians to high office, and they benefited.
So I guess my best answer to your excellent question is, pick what’s most important, package it in a way people can understand, deliver it in a manner in which people are willing to consume, and then keep it up forever.
Easy, right? Okay, maybe not easy. It’s work, but that’s my proposition. I’m open to improvements and alternatives.
Ivan Tcholakov
Oct 15 2020 at 4:43am
Seriously. Enough of this BS. Could somebody advise politely this lady to read something from James M. Buchanan?
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