Economics, capitalism and social progress

HH, one of my LUC students, wrote the following comment in the discussion board for my course Social and Business Entrepreneurship. I think it’s worth reading:

I think there is one area which is going backward – ‘Democracy.’ Due to tech advancement, now we can access information easily, but it is hard to verify whether it is reliable or not. Just like we had seen the American Presidential election in 2016, fake news dominated the Internet. On top of that, the same thing happened in the UK, the Brexit referendum. As Huff also mentioned in his article [PDF link], people tend to become less critical if there is too much information. It’s just out of our capacity to process everything with accuracy within a certain amount of time. Thus, people tend to go for an easy choice, believing what they want to believe, rather than evaluate information more thoroughly. Also, echo chamber effect makes it even worse. I think this is another critical challenge we are facing now – fake news on social media and the crisis of democracy. Check out this article, if you are interested in this topic: 

Also, on the discussion about poverty alleviation and progress, I agree with what A___ said: the world is focusing more on growth than achieving equality. But often what I found uncomfortable is a somewhat disparaging view towards profit-seeking companies, especially in the LUC community. I am not sure that I am the only one who felt this way, but from my perspective, money is neutral, and there is nothing wrong with pursuing it. The reason why capitalism is more successful than communism is that it understands the power of motivation and incentives. These are the foundation of innovations that make the world a better place. I believe, if they are not involved in illegal activities, purely profit-seeking firms can contribute to society by increasing productivity, investing in R&D, creating jobs, and so on. In addition, we all benefit from the products and services they sell. Only the way people use money determines the value of the money. I hope that many LUC students in the future become “successful entrepreneurs” and earn a lot of cash “ethically” and become “philanthropists.” I think it is way better than demanding the rich to share what they have. You can be the rich, and use it for the right thing.

To this, I replied:

What worries me is that some LUC’ers (and many people) take the old world view of profit as theft (zero-sum game) when the “magic” of economics is its revelation of win-win dynamics. This was why Smith (1776) was so influential.

Some people mistake economics for capitalism, which it’s not. But, worse, they also misunderstand capitalism as “=evil” when really:

Capitalism is an economic system based on the private ownership of the means of production and their operation for profit.

This definition and discussion doesn’t get to the important role of government, in creating the conditions for capitalism and also regulating its functions (competition, transparency, etc.)

These failures mean that those LUC’ers oppose institutions that create gains from trade and pt capital assets to good use: two main sources of our prosperity.

There are problems with markets (externalities) but there are also many problems with society (poverty) and government (corruption), so let’s keep all these issues in mind when seeking targets.

My one-handed conclusion is that many people blame capitalism for political failures.

Author: David Zetland

I'm a political-economist from California who now lives in Amsterdam.

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