Capitalism's Great Promise

In a recent WSJ editorial, the Dean of Harvard Business School provided a defense of Wall Street that has been absent from the political debate thus far, “Imagining an Economy without Wall Street.” The juxtaposition of Wall Street and Main Street has been political fodder throughout modern history but, for some reason, capitalists rarely come to its defense, at least publicly. When someone does, it’s worth paying attention to. This is especially important today because a generation of young workers knows little of capitalism’s great promise.

As a business leader, it is important to understand why capitalism has made the US the envy of the world. But it’s also important to reach your own conclusion about whether it has outlived its usefulness and, if so, what is going to replace it.

What most people fail to recognize about free market capitalism is that it is unapologetic about unequal outcomes. Capitalism does not promise equal riches, but rather equal opportunity to benefit from the fruits of one’s labor or the creation of intellectual property. Throughout the ages, organized societies have dealt with inequality of riches and for much of man’s history wealth resided within the ruling class. But without democracy’s commitment to equal opportunity and the protection of individual property rights, the ruling class is eventually undone by the masses.

Emigrants come to our shores not for the promise of owning a house on the beach but instead for the promise that through hard work and self-sacrifice they may someday have the opportunity to own a home – something that’s unattainable in many countries. Accepting that a mansion holds no monopoly on happiness is what allows the large and small homeowner to coexist happily on the same street. However, the benefits of capitalism crumble when people lose faith in its democratic underpinnings, when the absence of economic growth turns the hard work of the small homeowner into hard labor, and when wealth is concentrated among the ruling class.

To be sure, capitalism is not without shortcomings, but income inequality need not be one of them; it is the natural outcome of an economic system that knows no equal. Until we identify a superior mechanism, politicians and business leaders would do well to spend time thinking about how to grow the economy so that the allocation of scarce resources can once again raise the income prospects across all economic classes.

Categories: MBA