Misconceptions regarding capitalism

As part of its propaganda war on capitalism, the left expounds the theory that capitalism is inherently evil, encourages poor moral values and equates with and promotes greed. Recently our political leaders have been condemning people who have the urge to become wealthy, blaming this urge on “market fundamentalism”.

The real problem is misinformed anti-market fundamentalism, which is fundamentalism in the true sense of the word. It is blind faith that is in conflict with reality. The wealthy and those aspiring to be wealthy have been condemned as greedy and ruthless. However, in a true capitalist environment it is hard work and providing value to consumers that allows people to become wealthy. In such an environment there is proper application of the rule of law, no one is granted special statutory privileges, there are no barriers preventing competitors from entering any market, private property and persons are respected and protected, and there is unlimited opportunity for upward mobility available to the innovators and producers who best serve consumers.

Whilst President Mbeki expressed concern in his widely publicised 4th Nelson Mandela Annual Lecture about greed under South Africa’s capitalist system, he stressed that his government had chosen the correct path, and he did not query the desire to be rich. His concern was whether market fundamentalism has an adverse influence on the values of rich people.

There is nothing wrong with ambitious people who want to be wealthy. Rather than discourage people from having the desire to be wealthy, we should encourage the rich to grow their businesses as long as they comply with the laws of the country. We need more wealthy individuals not less. “Conspicuous expenditure” has also been blamed in a similar vein as a supposed by-product of capitalism, again linking unpopular values with capitalism. However, conspicuous expenditure is not a problem for the rich – they can afford it – but for the middle class and the poor, and, to the extent that it exists, it cannot be blamed on the rich or capitalism. Far from capitalism being an economic system that exploits the poor, it creates the wealth that is the only means of reducing poverty, and thereby serves the poor better than all potential alternatives.

The poor understand the value of wealth very well, which is why they risk their lives to migrate from socialist to capitalist countries, particularly countries where there are lots of rich people to offer them employment, goods and services. The only people who are confused about the virtue of wealth are leftists who are increasingly frustrated by the poor who keep voting with their feet for capitalism.

Apartheid is often touted as a product of capitalism by those who seek to tarnish the image of capitalism and slow its advance here and around the world, especially since the fall of communism in the USSR. Apartheid was not capitalism but a racist social agenda by those in power at the time. Similarly BEE is blamed on a capitalist agenda, which it is not – it is a political and social agenda that has nothing whatsoever to do with capitalism.

Capitalism does not promote high prices, the exploitation of anyone or corruption. On the contrary, it is capitalism that exposes and eliminates corrupt and inefficient businesses. This is unlike socialism in which malinvestment survives by virtue of the power of governments to perpetuate wealth-consuming follies by transferring taxed wealth from productive citizens to state industries. Note that capitalism does not promote monopolies but rather efficiency and service through competition. The existence of inefficient “parastatals” such as Telkom, that charge high prices, cannot be blamed on capitalism.

Stalin and Mao each massacred over 30 million of their own citizens in the name of communism – that is evil. Any system that denies its citizens the right to freely undertake economic activity is evil. Capitalism, like money, is neither good nor evil. In this sense capitalism is neutral. It is neutral regarding religion, morals, ethics, good, evil or any other subjective beliefs and values. To equate capitalism with evil is propaganda designed to confuse the majority of our people.

It is a capitalist economic environment, conducive to maximising the economic freedom and prosperity of its citizens, that will best serve SA. It creates wealth while socialism destroys it. Interventions in the market mechanism distort or subvert the proven benefits of capitalism and are usually negative for citizens. Capitalism gets incorrectly blamed for the consequences.

Questioning the ‘morality’ of capitalism is a favourite strawman of its opponents. It is people who are good or evil, moral or immoral, not economic systems. However, it is true that capitalism, or economic freedom, rewards peaceful voluntary exchange, while socialist systems reward their leaders and impoverish their followers. However, it is not the responsibility of the economic system but of religious, political and other leaders and institutions of civil society, especially the family, to create a climate of virtue.

Author: Ayanda Khumalo is the Deputy Chairman of the Free Market Foundation. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author's and are not necessarily shared by the members of the Free Market Foundation.

FMF Feature article/ 06 February 2007 - Policy Bulletin / 25 August 2009