charles murray: why capitalism has an image problem - wsj.com

Monday, July 30, 2012 As of 1:20 AM New York 84º | 71º

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THE SATURDAY ESSAY Updated July 30, 2012, 1:20 a.m. ET:

Why Capitalism Has an Image ProblemCharles Murray examines the cloud now hanging over American business—and what today'scapitalists can do about it.

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By CHARLES MURRAY

Mitt Romney's résumé at Bain should be a slam dunk. He has been a successfulcapitalist, and capitalism is the best thing that has ever happened to the materialcondition of the human race. From the dawn of history until the 18th century, everysociety in the world was impoverished, with only the thinnest film of wealth on top. Thencame capitalism and the Industrial Revolution. Everywhere that capitalism subsequentlytook hold, national wealth began to increase and poverty began to fall. Everywhere thatcapitalism didn't take hold, people remained impoverished. Everywhere that capitalismhas been rejected since then, poverty has increased.

Capitalism has lifted the world out ofpoverty because it gives people a chanceto get rich by creating value and reapingthe rewards. Who better to be president ofthe greatest of all capitalist nations than aman who got rich by being a brilliantcapitalist?

Yet it hasn't worked out that way for Mr.Romney. "Capitalist" has become anaccusation. The creative destruction thatis at the heart of a growing economy isnow seen as evil. Americans increasinglyappear to accept the mind-set that keptthe world in poverty for millennia: If you'vegotten rich, it is because you madesomeone else poorer.

What happened to turn the mood of thecountry so far from our historic celebrationof economic success?

Two important changes in objectiveconditions have contributed to this changein mood. One is the rise of collusivecapitalism. Part of that phenomenoninvolves crony capitalism, whereby thepeople on top take care of each other atshareholder expense (search on "golden

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parachutes").

But the problem of crony capitalism istrivial compared with the collusionengendered by government. In today'sworld, every business's operations andbottom line are affected by rules set bylegislators and bureaucrats. The resulthas been corruption on a massive scale.Sometimes the corruption is retail,whereby a single corporation creates acompetitive advantage through thecooperation of regulators or politicians(search on "earmarks"). Sometimes thecorruption is wholesale, creating anindustrywide potential for profit that wouldnot exist in the absence of governmentsubsidies or regulations (like ethanol usedto fuel cars and low-interest mortgages forpeople who are unlikely to pay themback). Collusive capitalism has becomevisible to the public and increasinglydefines capitalism in the public mind.

Another change in objective conditionshas been the emergence of great fortunesmade quickly in the financial markets. Ithas always been easy for Americans toapplaud people who get rich by creatingproducts and services that people want tobuy. That is why Thomas Edison andHenry Ford were American heroes acentury ago, and Steve Jobs was onewhen he died last year.

When great wealth is generated insteadby making smart buy and sell decisions inthe markets, it smacks of insideknowledge, arcane financial instruments,opportunities that aren't accessible toordinary people, and hocus-pocus. Thegood that these rich people have done inthe process of getting rich is obscure. Thebenefits of more efficient allocation ofcapital are huge, but they are really, reallyhard to explain simply and persuasively. Itlooks to a large proportion of the public asif we've got some fabulously wealthypeople who haven't done anything todeserve their wealth.

The objective changes in capitalism as itis practiced plausibly account for much ofthe hostility toward capitalism. But theydon't account for the unwillingness ofcapitalists who are getting rich theold-fashioned way—earning it—to defendthemselves.

I assign that timidity to two other causes.First, large numbers of today's successfulcapitalists are people of the political leftwho may think their own work is legitimatebut feel no allegiance to capitalism as a

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system or kinship with capitalists on theother side of the political fence.Furthermore, these capitalists of the leftare concentrated where it counts most.The most visible entrepreneurs of thehigh-tech industry are predominantlyliberal. So are most of the people who runthe entertainment and news industries.Even leaders of the financial industryincreasingly share the politics of GeorgeSoros. Whether measured by fundraisingdata or by the members of Congresselected from the ZIP Codes where theylive, the elite centers with the most clout inthe culture are filled with people who areembarrassed to identify themselves ascapitalists, and it shows in the culturaleffect of their work.

Another factor is the segregation ofcapitalism from virtue. Historically, themerits of free enterprise and theobligations of success were intertwined inthe national catechism. McGuffey'sReaders, the books on which generationsof American children were raised, haveplenty of stories treating initiative, hardwork and entrepreneurialism as virtues,but just as many stories praising thevirtues of self-restraint, personal integrityand concern for those who depend onyou. The freedom to act and a stern moralobligation to act in certain ways were seenas two sides of the same American coin.Little of that has survived.

To accept the concept of virtue requiresthat you believe some ways of behavingare right and others are wrong always andeverywhere. That openly judgmental standis no longer acceptable in America'sschools nor in many American homes.Correspondingly, we have watched thedeterioration of the sense of stewardshipthat once was so widespread among themost successful Americans and the neardisappearance of the sense of seemlinessthat led successful capitalists to beobedient to unenforceable standards ofpropriety. Many senior figures in thefinancial world were appalled by what wasgoing on during the run-up to the financialmeltdown of 2008. Why were they sosilent before and after the catastrophe?Capitalists who behave honorably andwith restraint no longer have either theplatform or the vocabulary to preach theirown standards and to condemn capitalistswho behave dishonorably and recklessly.

And so capitalism's reputation has fallenon hard times and the principled case forcapitalism must be made anew. That case

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While Ray Kroc (shown) and Mark Zuckerberg havebeen lauded as innovators, financial moguls attractmore suspicion.

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has been made brilliantly and often in thepast, with Milton Friedman's "Capitalismand Freedom" being my own favorite. Butin today's political climate, updating thecase for capitalism requires a restatementof old truths in ways that Americans fromacross the political spectrum can accept.Here is my best effort:

The U.S. was created to foster humanflourishing. The means to that end was theexercise of liberty in the pursuit ofhappiness. Capitalism is the economicexpression of liberty. The pursuit ofhappiness, with happiness defined in theclassic sense of justified and lasting

satisfaction with life as a whole, depends on economic liberty every bit as much as itdepends on other kinds of freedom.

"Lasting and justified satisfaction with life as a whole" is produced by a relatively small setof important achievements that we can rightly attribute to our own actions. Arthur Brooks,my colleague at the American Enterprise Institute, has usefully labeled suchachievements "earned success." Earned success can arise from a successful marriage,children raised well, a valued place as a member of a community, or devotion to a faith.Earned success also arises from achievement in the economic realm, which is wherecapitalism comes in.

Earning a living for yourself and your family through your own efforts is the mostelemental form of earned success. Successfully starting a business, no matter how small,is an act of creating something out of nothing that carries satisfactions far beyond thoseof the money it brings in. Finding work that not only pays the bills but that you enjoy is acrucially important resource for earned success.

Making a living, starting a business and finding work that you enjoy all depend onfreedom to act in the economic realm. What government can do to help is establish therule of law so that informed and voluntary trades can take place. More formally,government can vigorously enforce laws against the use of force, fraud and criminalcollusion, and use tort law to hold people liable for harm they cause others.

Everything else the government does inherently restricts economic freedom to act inpursuit of earned success. I am a libertarian and think that almost none of thoserestrictions are justified. But accepting the case for capitalism doesn't require you to be alibertarian. You are free to argue that certain government interventions are justified. Youjust need to acknowledge this truth: Every intervention that erects barriers to starting abusiness, makes it expensive to hire or fire employees, restricts entry into vocations,prescribes work conditions and facilities, or confiscates profits interferes with economicliberty and usually makes it more difficult for both employers and employees to earnsuccess. You also don't need to be a libertarian to demand that any new interventionmeet this burden of proof: It will accomplish something that tort law and enforcement ofbasic laws against force, fraud and collusion do not accomplish.

People with a wide range of political views can also acknowledge that these interventionsdo the most harm to individuals and small enterprises. Huge banks can, albeit at greatexpense, cope with the Dodd-Frank law's absurd regulatory burdens; many small bankscannot. Huge corporations can cope with the myriad rules issued by the OccupationalSafety and Health Administration, the Environmental Protection Agency, the EqualEmployment Opportunity Commission and their state-level counterparts. The same rulescan crush small businesses and individuals trying to start small businesses.

Finally, people with a wide range of political views can acknowledge that what hashappened incrementally over the past half-century has led to a labyrinthine regulatorysystem, irrational liability law and a corrupt tax code. Sweeping simplifications andrationalizations of all these systems are possible in ways that even moderate Democratscould accept in a less polarized political environment.


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To put it another way, it should be possible to revive a national consensus affirming thatcapitalism embraces the best and most essential things about American life; that freeingcapitalism to do what it does best won't just create national wealth and reduce poverty,but expand the ability of Americans to achieve earned success—to pursue happiness.

Reviving that consensus also requires us to return to the vocabulary of virtue when wetalk about capitalism. Personal integrity, a sense of seemliness and concern for thosewho depend on us are not "values" that are no better or worse than other values.Historically, they have been deeply embedded in the American version of capitalism. If itis necessary to remind the middle class and working class that the rich are not theirenemies, it is equally necessary to remind the most successful among us that theirobligations are not to be measured in terms of their tax bills. Their principled stewardshipcan nurture and restore our heritage of liberty. Their indifference to that heritage candestroy it.

—Mr. Murray is the author of "Coming Apart: The State of White America, 1960-2010" and theW.H. Brady Scholar at the American Enterprise Institute.

A version of this article appeared July 28, 2012, on page C1 in the U.S. edition of The Wall StreetJournal, with the headline: Why Capitalism Has an Image Problem.

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