Lifting all Boats

November 1, 2012

The aftermath of the recent financial crisis has witnessed backlash against profit motive and private enterprise. At first glance, it is easy for one to sympathize with the rancor demonstrated toward banks that took on excessive risk in their quest for profit -- reckless pursuits that ultimately lead to the current crisis, says Gary S. Becker, the Rose-Marie and Jack R. Anderson Senior Fellow at the Hoover Institution and University Professor of Economics and Sociology at the University of Chicago.

However, anyone concerned about the welfare of the poor and middle class should resist the temptation to attack competitive private enterprise and capitalism. 

Upon deeper reflection, the main reason to defend competitive capitalism from the recent attacks is the reward it has delivered over the past 150 years to every aspect of society. Consider:

  • Thirty years ago, China was one of the poorest countries in the world. Coming out of the haunting struggles of the Cultural Revolution and the Great Leap Forward, China's leaders experimented with piecemeal capitalist reform, initially in the agricultural sector.
  • Accordingly, farm output exploded, even though farmers only had tiny plots.
  • Given the success, China further integrated this market system in other industries, thereby encouraging further economic growth and development.
  • Today, China is the second largest economy -- soon to overtake the United States as the largest economy.
  • Since economic liberalization, China has metamorphosed from being a case study in poverty into a major economic agent in today's global marketplace. In the process, China has lifted hundreds of millions of its citizens out of grinding poverty into working and middle-class life style.

Many critics attack globalization as the source of the world's economic challenges. But the opposite is much closer to the truth: competitive private enterprise and the profit motive, acting through a globalized economy, have eliminated the most dire cases of poverty for more than a billion people in China, India and other regions of Asia.

  • America's rise to prosperity is recognition of the capitalist system.
  • America has had the most open, dynamic and competitive private sphere agents over the past 150 years.
  • Since 1870, Americans' incomes have grown at the rate of about 2 percent per year.

Becker acknowledges that competitive capitalism may not always execute with ideal results. But, in the communal anger at banks and investors, voters and governments must be careful not to kill the goose that has laid so many golden eggs.

Source: Gary S. Becker, "Lifting all Boats," Hoover Institution, October 26, 2012.

 

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