In Praise of Wealth Creation

Capitalism is not perfect. But it has produced a wide range of benefits. No other economic system has been able to come up with the goods. Sure, the free market must be kept in check by ethical, social and even religious concerns. But no other system has created wealth and lifted the majority of mankind out of poverty.

A Swedish writer recently sought to give some historical sense to the rise and benefits of global capitalism. Writing in the October 1, 2006 Wall Street Journal, he makes the case for “Humanity’s greatest achievement”.

Norberg begins by asking us to engage in a little thought experiment: “Think for a moment about what this morning would have looked like if it were 150 years ago. You wouldn’t have had electric light, running water or indoor sanitation. You couldn’t have gone to work by car, bus or train. You couldn’t have used a computer, which performs calculations in seconds that would take decades with pen and paper. In short, you would probably not have found this morning very comfortable or enjoyable – if you had been alive to experience it. Back then, the global average for life expectancy was around 30 years.”

We in the West of course often simply assume that life has always been this good. But not so. “We tend to take our opportunities for granted, but our ancestors could not have imagined what we now have. In the last 100 years, we have created more wealth than in the 100,000 years before that, and not because we work more. To the contrary: In the last century, work hours have been halved in the Western world. It is because new ideas have made it possible for us to work smarter and find easier ways to satisfy our needs and demands.”

So how did all this come about? “The people we should thank are the innovators and entrepreneurs, the individuals who see new opportunities and risk exploring them – the people who find new markets, create new products, think out new ways to handle commodities commercially, organize work in new ways, design new technology or transfer capital to more productive uses. The entrepreneur is an explorer, who ventures into uncharted territory and opens up the new routes along which we will all be traveling soon enough. Simply to look around is to understand that entrepreneurs have filled our lives with everyday miracles.”

Continues Norberg, “Entrepreneurs are serial problem-solvers who search out inefficiencies and find more practical ways of connecting possible supply with potential demand. In that way, they constantly revolutionize our economy, and have made it possible for average people today to live longer and healthier lives, with more access to technology than the kings had in previous generations.”

But if the free market and entrepreneurship has done so much good, why is it criticised so much? Much of the media and academia continue to denounce capitalism in the strongest terms. Part of the problem lies in the belief that in order for someone to gain wealth, another person must lose wealth.

“Whenever we see wealth we have gotten used to thinking that someone somewhere else has lost out. The history of socialism can be interpreted in this light. Marx said that the wealth of the capitalists came at the expense of the workers. But even in his lifetime, the average worker in Britain increased his income threefold. Then Lenin saved socialism by saying that the original hypothesis might be wrong, but only because someone else had to pay the price – poorer countries that were exploited by trade and investments. Today, once again, we know that the opposite is true. Since 1950, extreme poverty has been reduced to 20% from 60% in developing countries. The reduction has been led by the countries that have the most trade and investment links with us, whereas those that have been shut out, such as sub-Saharan Africa, have stagnated.”

Again, the free market is not perfect, and moral considerations always need to be applied to wealth creation. But one might ask, which is better, a system that speaks much of morality but does little to release people from poverty, or a system that may seem morally-neutral, but does help many to aspire to a better life? Of course the reality is not quite so simple, but in the main, these have historically been the main options. Economic third ways have never really existed: countries have either been more to the side of free markets, or more to the side of state intervention. Which system actually performs in creating wealth is a matter of historical record.

Concludes Norberg: “Don’t expect the critics of capitalism to change their minds any time soon. As long as they don’t believe in the creative ability of mankind or that the market is a plus-sum game, they will continue to think that someone, somewhere, is victimized whenever and wherever we see growth and innovation. Unless this disparagement of entrepreneurs is tamed, people will allow government, with its arsenal of taxes and regulations, to take their place.”

[845 words]

3 Replies to “In Praise of Wealth Creation”

  1. The closing phases caught my eye. In the same way that ownership and patent laws released inventors from the king and allowed them to be rewarded for innovation thus fuelling the process, regulation could throttle innovation.

    Presumably runaway inflation would also stop innovation by restricting the availability of capital.

    Andrew Snowdon

  2. In addition to Norberg’s common-sense observations it should be noted that capitalism not socialism is the more biblical system. Many passages in the Bible presuppose concepts such as private ownership and a free market so it should be no surprise to us that it also happens to be the most practical and succesful system. That the Bible favours these concepts is a fact lost on those who promote “liberation theology” and the “social gospel”, both of which owe more to Marxism than to Christianity.

    Ewan McDonald, Victoria

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