Can we make money and save the world at the same time?

Markets Aren't Immoral

Clive Crook is a Bloomberg View columnist and writes editorials on economics, finance and politics. He was chief Washington commentator for the Financial Times, a correspondent and editor for the Economist and a senior editor at the Atlantic. He previously served as an official in the British finance ministry and the Government Economic Service.
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I spent last weekend moderating a seminar on ethics and capitalism at the Aspen Institute. I can imagine investment bankers and Occupy protesters agreeing, even if they agreed about nothing else, that those subjects have nothing to do with each other -- and that talking about them at a retreat for plutocrats only adds to the absurdity.

Personally, I can stand the dissonance if it means a trip to the Rockies. And I've attended these Aspen retreats before. I like them because they're designed to avoid echo-chamber syndrome. It was a mostly young group with a wide range of interests and experience: I wasn't surprised to learn a few things.

How to think about morals and markets? Adam Smith saw ethics and economics as branches of the same subject, a perspective that could stand to be revived. I'd say a good place for modern readers to start is Milton Friedman 's classic "Capitalism and Freedom." In a free economy, Friedman wrote:

There is one and only one social responsibility of business -- to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud. ... Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible.

The second sentence is overkill -- I can think of worse threats to a free society than businessmen who want to do the right thing. Still, it draws attention to the ethical judgment underlying Friedman's view, which is often mistakenly taken to represent a rejection of ethics. Friedman says that corporate officials owe a duty to the owners of the assets they've been hired to manage. What he called the "public functions of taxation, public spending and control" -- i.e., regulation -- are properly discharged, within limits, by governments accountable to citizens.

If you ask me, this describes -- in principle -- the correct division of labor between state and market. In my seminar, I seemed to be in a minority in thinking so. Some of the objections I heard to the Friedman view struck me as plain wrong; others got me thinking.

The biggest misconception is a popular one -- that markets deliver social value only if managers worry about doing good as well as succeeding in business. "Profits are all very well, but what are you doing for society?" This is complete nonsense. The history of rising prosperity and, in recent decades, stunningly fast reductions in global poverty are overwhelmingly the result of market transactions, not good deeds.

Again, see Adam Smith: "It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest." Or, as one of the seminar participants put it, Microsoft Corp. has created far more social value for the world by designing and selling software than the Gates Foundation ever will through charitable works -- admirable as those efforts may be.

A different objection to Friedman recurred all through the discussion and isn't so easily dismissed: The market can't be detached from the wider social and political system of which it is a part. As even Friedman acknowledged, capitalism isn't a freestanding system: It's shaped by a wider framework of law, custom and culture. That's why there are so many different capitalisms -- and why the differences aren't captured just by measuring the size of government. German capitalism (with its emphasis on consensual labor relations) is less like British capitalism, for instance, than standard measures would suggest.

Market arrangements and institutions also change the cultural context: The shaping, in other words, goes both ways. A zeal for market deregulation, for example, may change how people relate to each other as citizens. All's fair in love, war and financial contracts. It's too narrow to talk about "the market system," whatever that means. The neat division between state and market can't be sustained.

There's also a much simpler objection to the notion of separate spheres. What if the political sphere just doesn't work? In the U.S., this isn't an academic question. Social-policy goals -- even those capable of commanding consensus -- lately seem beyond the reach of existing politics.

Think about the debate over raising the minimum wage. The best and most market-friendly way to attack poverty in work, a goal commanding wide support, would be with a subsidy -- for instance, with a broader and more generous earned income tax credit. It isn't happening.

Raising the minimum wage -- if necessary, state by state or city by city -- is much less market-friendly and is for that reason likely to have bad side effects. Whereas a subsidy increases the demand for labor, a higher minimum wage may reduce it, adding to unemployment. On balance, though, a modest increase in the minimum wage from prevailing levels probably would reduce poverty. It looks more feasible than the best policy, and it might be better than nothing. Consumer pressure on companies to raise the pay of their lowest-paid employees can work, too. Again, it's far from ideal. Again, it may serve the greater good.

Ideally, one wants markets to focus on what they're best at while governments pursue democratically chosen social goals in the most market-conforming way. I reckon that's ever worth striving for -- but in a world of imperfect markets and broken governments, I have to admit it only gets you so far.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

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Clive Crook at

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James Gibney at