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Enterprise Excellence 2
Back Page Interview In this new section of Enterprise Excellence we will feature interviews with people whose work, whether as theorists or practitioners, has relevance to the vision and aims of Transforming Business. The views expressed are the interviewees own and do not necessarily reflect the thinking of Transforming Business.
Do you think that price signals are the only way for altruism to be expressed? No, but our knowledge of people outside our own circle is so partial that the best way to serve their needs is through price signals. This is because price signals most accurately reflect the needs of people we don't know, who may be on the other side of the world. Now, this doesn't apply in the case of natural disasters. In the case of an earthquake, for instance, the functioning of the market is suspended. People can't be expected to buy what they need in such circumstances. We have to respond with basic charity. But such crisis situations are the exceptions rather than the rule. And it is, of course, only through the wealth that the markets generate that we can respond to such needs in the first place. Does this mean that there is, in fact, a case for development aid? In other words, in situations of economic crisis, aid is given to help people become more productive, so that they can fend for themselves? Development aid is generally given with the best of intentions. But it tends not to deliver the expected outcomes. It tends to produce perverse incentives and it puts huge power into the hands of governments that are all too often corrupt. The best way to help poor people in developing countries is to help establish market institutions in those countries. These include private property rights, the rule of law and sound money. Giving financial hand-outs to countries that don't have these institutions will produce little benefit for poor people. Do you regard democracy as a 'market institution'? Good question! Democracies and free societies tend to go hand in hand. Having said that, democracy tends to lead to socialist policies, such as protectionism. If democracy leads to property rights and the rule of law, then yes, you need democracy. But otherwise, democracy is not a prerequisite for a market economy. Hans-Hermann Hoppe from the US argues that a benevolent monarchy is preferable to a democracy. This is because a benevolent monarch doesn't have the incentives and necessary structures a democracy has to take people's money and pursue protectionist policies. Democracies tend to create very large states. In most European countries, including the UK, nearly half of GDP goes to the state. This is not good for the creation of free markets. But many people would say that whereas democratically elected governments reflect the will of the majority, and therefore public interest, business reflects the will of powerful minorities and reflects only private interest. I don't accept that distinction. There is lots of evidence to suggest that in market-orientated societies people do express public-spirited virtues. The way people spend on consumer goods, for instance, often reflects their social concern, such as when they decide to boycott certain goods or companies. There is also lots of evidence that people tend to vote for governments they think will make them richer. People don't tend to vote according to altruistic objectives. The welfare state is not so much about altruism but about getting more for ourselves. Democracies tend to produce perverse outcomes – outcomes that reflect the interests of powerful minority groups. In the western world, farmers are a classic example. They have incredible privileges given to them through so-called democratic systems. But these privileges don't reflect their economic contribution to society. And they're given these privileges not because of any benevolence on the part of the public but because farmers capture the political process very effectively to secure their own interests. So the desire for a big state doesn't come from people's desire to see wealth redistributed to the less privileged. It comes from organized interest groups capturing the political process to secure benefits for themselves. You argue that institutions such as property rights are necessary for the proper functioning of a market economy. Do you think that virtues are also important? Another good question! My view is that that the market is a school for virtue. To operate successfully in the market you eed a reputation for honesty, probity, etc. Because of this, the market tends to generate such virtues. Some may retort that this is true only of virtuous behaviour. In other words, the market doesn't make people more virtuous it just makes them act more virtuously. I'm prepared to concede this point. But what matters is that the market engenders ethical behaviour. Because of this, I wouldn't say that virtue was a pre-requisite for successful market participation. I'd almost want to argue the opposite - that market participation is a pre-requisite for virtue! In the eighteenth century, Voltaire gave a paper in which he described the London stock market. He pointed out that it involved people of very different backgrounds, races and beliefs and yet they all worked together harmoniously. That's my view of the market. You don't need a shared culture, or shared values, for it to work. All you need are shared prices! So trust, integrity and honesty aren't important? Yes, they are, but they are secured and made possible through the rule of law and by the functioning of the market. Your book is very emphatic and your confidence in the market appears absolute. Would you be prepared to call yourself a 'market fundamentalist'? That term is often bandied about. Joseph Stiglitz has used it to refer to his opponents. But the American conservative and former US presidential candidate Barry Morris Goldwater famously said, 'Extremism in the defence of liberty is no vice.' I think it's appropriate to be fanatical about freedom, including economic freedom. The other point I'd make is that I wanted in my book to mount the strongest case I could for the market. I wanted to see how it stacked up against the concerns of market skeptics. That's why the arguments are forcefully put. They are emphatic – you're right. The book is certainly rhetorical. Imagine in future we live in a society in which the state has become almost non existent because of the overwhelming size and power of the market. Would anything alarm you about such a prospect? No, not at all. I believe strongly that it is when people have the opportunity to participate in markets that they produce of their best – their best in every sense. People who go to the wall in our society, for instance people serving just prison sentences, tend to be people who have never participated in the market. Often they've been unemployed or been in state institutions or one sort or another. The more people participate in the market, the more they learn to interact with people of different backgrounds, learn new skills, work hard, learn to trust people and respect people. So the market is the best hope we have of creating a good society. How successful do you think your book will be at winning over those who don't share your market optimism? I hope that my book shows that there is a moral case for the market; that the market isn't a necessary evil but can be a force for moral good. In terms of academia, I hope I've shown that I'm willing to engage with the other side of the debate. I've done this by discussing such issues as redistribution, coercion and exploitation. Because of this, I hope that those on the other side of the debate will engage back with me. That way we'd have a dialogue, rather than two opposing viewpoints. This interview was conducted at the Institute for Economic Affairs in London in Spring 2006. |
