Capitalism, cronyism, and poverty

Capitalism, cronyism, and poverty

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In a recent Vancouver Province column “Capitalism has a role in fighting poverty,” Mark Milke takes Pope Francis to task, rightfully, for attacking capitalism while at the same time calling for eradication of poverty. Milke is correct in recognizing the role capitalism plays in eradicating poverty. However, capitalism not only “has a role” in fighting poverty: it is the only way to eradicate poverty. Government efforts at directing economies and “redistributing” income from those who produce to those who don’t (or to those who produce less) have never been successful at eliminating poverty. Witness the failed experiments at central planning in the former Soviet Union and China (and the famines that ensued), or the more recent long-term, failed redistribution schemes in bankrupt Greece and elsewhere in Southern Europe. Then consider relative free eras and regions of the world, such as the 19th century America and Hong Kong even today, for a contrast.

While pointing out the pope’s error, Mr. Milke finds an excuse for him: as an Argentinian, the pope has observed only “crony capitalism,” in which competitive markets are replaced by government favoritism of some, and real wealth creation fails to occur, leaving many struggling with poverty. Argentina is a prime example. From relative freedom and prosperity a century ago, it has steadily declined in economic well-being—due to heavy-handed government interference in the economy—to being one of the poorer countries today. If only Pope Francis understood the difference between “crony capitalism” and “competitive capitalism” of free markets and property rights, implies Milke, he and every other reasonable reader would come to see the role capitalism has in reducing poverty.

I doubt very much that the pope would ever embrace pure capitalism—because it is a system fundamentally at odds with his ideal of equality of income and wealth. Capitalism rewards production of better, cheaper goods and services with wealth. While the wealth producers create under capitalism increases everyone’s standard of living (better, cheaper goods; employment  opportunities; higher wages, etc.), people’s productive ability and motivation vary and therefore also their income and wealth.

I commend Mark Milke for criticizing the pope for attacking capitalism but also want to take him to task for perpetuating the wide-spread confusion about the only social system that can (and will, if allowed) eradicate poverty. Capitalism, in Ayn Rand’s words, is “a social system based on the recognition of individual rights, including property rights, in which all property is privately owned.” There are no different ‘types’ of capitalism, such as “competitive capitalism,” “crony capitalism,” or “state capitalism.”

In my post last week, I used the term “pure capitalism” to differentiate capitalism from all the other confused notions—which are all oxymorons. Take “crony capitalism.” If individual rights are protected and all property is privately owned, there cannot be any cronyism, or government favoritism, towards anyone. In capitalism, the government plays no role in the economy, so it cannot hand out favors, such as subsidies or interest-free loans or tariff protection or monopolies to anyone. In capitalism, government cronyism does not exist. The same goes for “state capitalism.” The government’s only role in capitalism is to protect the individual rights of its citizens by barring initiation of physical force. The state does not plan, regulate, or subsidize the economy but literally keeps its hands off.

If we want to eradicate poverty and increase economic and general well-being, we need to understand first what capitalism really means, and then embrace it. We will not be able to convince the pope and his followers, but those open to reason, valuing freedom, and wishing for human flourishing on Earth should be persuaded. If everyone who is persuaded spoke up and defended capitalism through whichever avenues are open to them and protested government intrusions of our freedom, we would have a chance for a better, more prosperous future.

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7 Responses

  1. Well said, Jaana, and such is what needs to be said, explained and understood, that cronyism is not capitalism. Thank you!

  2. Reblogged this on Right From Yaad and commented:
    Right From Yaad would dearly love to have a one-on-one with Jaana Woiceshyn, if just for a few hours to learn how it is she can easily write her articles regarding Capitalism, Freedom and Objectivism.

    Ayn Rand appears to be her major influence.

    If her principles are to be found in her excellent writing then I am sure the students of her classes in Business Ethics and subsequent grauduates of the Haskayne Business School, University of Calgary are definitely light-years ahead of our graduates from the UWI’s Mona School of Business, with all the left-wing nonsense purported and perpetuated from Kingston 7.

    1. Thank you, RightFromYaad, for the compliments. I find that righting becomes easier the more I do it (and writing my book really clarified to me how Ayn Rand’s Objectivist ethics applies to business and to its social context. Having that understanding certainly helps).

      An excellent source for learning clear writing (and defending capitalism) is Don Watkins’ website Good Copy Coaching:
      http://goodcopycoaching.com/author/don-watkins/

  3. I saw this cartoon on YouTube this morning, introducing The Kronies….

    What do you make of it Jaana? I thought it hilarious with great potential to educate children!
    -K Fiennes (Right From Yaad)

  4. There’s much cronyism in neo-Marxist politics as well.

    The current US administration is thick with conflicts of interest.

    It’s always been a problem – politicians taking bribes a century plus ago, favouratism in awarding government contracts in the 1950s in NE BC, mercantilism in conservative governments in BC and Canada, favouring unions by neo-Marxist governments in BC.

    All examples of why government is not the solution.

  5. There are a couple of grammar cops among my friends on Facebook, good people despite their obsession. 😉

    In SoCal, Jaana may know Donna M. and Sally D. who do editing.

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Jaana Woiceshyn teaches business ethics and competitive strategy at the Haskayne School of Business, University of Calgary, Canada.

She has lectured and conducted seminars on business ethics to undergraduate, MBA and Executive MBA students, and to various corporate audiences for over 20 years both in Canada and abroad. Before earning her Ph.D. from the Wharton School of Business, University of Pennsylvania, she helped turn around a small business in Finland and worked for a consulting firm in Canada.

Jaana’s research on technological change and innovation, value creation by business, executive decision-making, and business ethics has been published in various academic and professional journals and books. “How to Be Profitable and Moral” is her first solo-authored book.

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