Capitalism is still the best way to grow economies – FMF

JOHANNESBURG — Free markets aren’t perfect, but they’ve proved to be the best system we have to lift people out of poverty. Hands down, capitalism has beaten socialism over the last century when it comes lifting millions into the middle classes and a better life. And a paragraph in a story on The Wall Street Journal on how life has got better over the last century sums it up beautifully: “For most of recorded history humanity lived on the brink of starvation. As recently as 1980 nearly half the world lived in “extreme poverty … [but] the proportion of people in extreme poverty was projected to fall to an estimated 8.6% last year [2018] and, given the correlation between growth and poverty, is almost certain to drop further this year.” – Gareth van Zyl

By Chris Hattingh*

According to Oxfam, a new billionaire was created every two days in 2018. What an incredible, remarkable phenomenon. Never have people created so much wealth for themselves through businesses and trading. Before the advent of capitalism, the only way wealth could be created was through force. Why are we decrying the remarkable effects of freedom – that you can make wealth by producing goods and services for others?

Throughout the years, Oxfam never adequately answered the question of how the people it condemns created their wealth in the first place. Wealth, in and of itself, is not immoral. To create wealth for oneself and one’s descendants, you look at the world around you, taking into consideration available resources, talents and interests. You find opportunities in the needs and desires of other people. At the most fundamental level, to create wealth, you must think. Creating wealth means that you need to appeal to people’s interests – you cannot force them to give you their money.

The Oxfam report points out that the “poorest 10% of Britons are paying a higher effective tax rate than the richest 10% (49% compared with 34%) once taxes on consumption such as VAT are taken into account.” Increased taxation, especially in the form of regressive taxes like VAT (value added tax), affects the poor far more than the rich. When taxes are increased, richer people can take their wealth offshore, move to a different country, or, if there is enough demand, increase the prices of their products. Poorer people do not have that luxury. When a government embarks on a grand social project, it needs funding. It can only obtain funding in the form of taxes or borrowing. The tax burden will, inevitably, land on the people who remain in the country and cannot organise their affairs in such a way as to reduce their tax burden. Government borrowing is a burden on future generations.

Read also: Trampling individual rights, the mark of Collectivism – Hattingh on Capitalism

The Oxfam report points out that governments do not use taxes effectively. This comes as little surprise. To then call for increased taxation on the wealthy to fund public programmes, is the response of those who cannot see the wood for the trees. If we are truly concerned for the welfare of poor people, we need to remove regulations which prevent them from obtaining work and saving. To tell them that their situation in life was caused by the mere existence of richer people does nothing to help them.

Inequality in and of itself does not tell us anything about the moral landscape of the world. There will always be differences in the levels of wealth between people. Let me correct that: There will always be differences in the levels of wealth between people as long as they are free. We can only attain perfect equality if we completely restrict people’s soc8ial and economic freedom – the authoritarian path. The confused outrage and tension that Oxfam says is caused by inequality, in fact, is a self-fulfilling prophesy: It is because Oxfam and the like convince poor people that others are only wealthy because they somehow took it from them through deception or force that they are upset. Inequality itself is irrelevant; the way in which people create wealth, however, is where we should turn our moral magnifying glass.

Read also: Oxfam’s inequality report ‘dangerous and intellectually dishonest’ — FMF

Oxfam’s director of campaigns and policy, Matthew Spencer, said, “The massive fall in the number of people living in extreme poverty is one of the greatest achievements of the past quarter of a century but rising inequality is jeopardising further progress.”

How can one so easily undercut such a remarkable achievement?

How exactly was this reduction in poverty achieved? Through wealth redistribution, or through freer markets? As indicated in the annual Economic Freedom of the World report, countries with free economies grow faster which rapidly increases the quality of life of their citizens. Regressive policies such as redistribution and high taxes, as advocated by Oxfam, encourage productive people to leave their countries, which means investment also departs and economies slow down. Slow-growing economies have the biggest negative effect on poorer people, because they cannot leave a country as easily as richer people can. We should be celebrating the creation of more billionaires, not wailing about it. The most direct route to great wealth is to provide exceptional service to your fellow beings.

People’s wealth is constantly shifting. They make different decisions about money in their lives and move in and out of different income ‘classes.’ To not discuss how people’s lives are improving around the world because they have greater freedom, completely drops the context of poverty reduction.

It is correct that there are more wealthy people, and this is fantastic news. To ignore how most people are increasing their wealth and are moving from lower incomes into the middle class, indicates a lack of understanding of economic activity.

From where does the notion come, that richer people made their wealth through immoral means? Are they simply an easy scapegoat? This question is never answered. But if you accuse someone of something, the burden rests on you to prove their guilt. The size of one person’s house bears no direct relevance to whether another person can afford medical services, as is implied by Oxfam. To equate the fortune of one with the misfortune of another, in today’s freer economies, is incorrect.

Economies that are freer are growing – the people in those countries benefit from increased trade and investment. Economies that are restricted, witness increased social strife, low growth, crumbling infrastructure and no real hope for the future. Yet it is clear which kind of economic system and policies Oxfam favours: ones that result in everyone being equally poor.

Do not let unexamined philosophy direct your moral indignation; question the premises behind any normative claim. To suggest that staggering numbers of people cannot afford x because someone else has wealth, is a grave moral mistake.

  • Chris Hattingh is a Researcher at the Free Market Foundation. He has an MPhil in Business Ethics from Stellenbosch University. He is the author of published articles on consumer rights, economic freedom, inequality and individual freedom.