Al Gore claims that capitalism “has turned many of the world’s largest economies into hotbeds of irresponsible short-term investment” (click here to see the news story:http://www.reuters.com/article/2012/02/16/sustainablecapitalism-idUSL5E8DG45E20120216 ) He argues that capitalism causes business people to focus on short-term profit maximization which, allegedly, prevents sufficient regard for “people, society, and the planet.” Nothing could be further from the truth. Capitalism, according to Ayn Rand, is “a social system based on the recognition of individual rights, including property rights, in which all property is privately owned.” Such a system does not exist today—note the frequent violations of individual rights by governments and other individuals, and “public” ownership of property—but if it did, it would be extremely “sustainable” (to borrow Gore’s language).

Capitalism is a system of competition in which companies and individuals strive to do their best in producing and trading goods and services in order to maximize profits—short-term and long-term. If a businessperson pollutes someone else’s property or violates their other individual rights (life, liberty, pursuit of happiness), say, by committing a fraud in the pursuit of short-term profits, he will not be able to achieve or keep those profits. Why? Because individual rights are recognized and protected (by the government), the businessman cannot get away without penalty and compensation to his victims. In a system of competition those companies that  maximize  profits while recognizing the individual rights of others will be the winners, both in the short and the long term.

Capitalism is not the cause of “irresponsible short-term investment.” What is? People in business and elsewhere act irresponsibly and irrationally when they can get away with it. And they can get away with irrational behavior when governments sanction it, such as by bailing out bankrupt companies with tax payers’ money, or by forcing banks to give out mortgages to unqualified borrowers, or by not protecting the individual rights of the victims of irrational companies. It is not capitalism that encourages irresponsibility but the governments’ interference in the operation of the markets. That is the reason why Gore’s proposal for “curing” capitalism by banning quarterly earnings reports is a bad idea: it would violate business firms’ right to liberty and prevent competition from promoting the best players as winners.

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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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