May 30, 2012
I had an interesting discussion on my last podcast, with 2 callers. One identified himself as a professional musician; the other (@brooksbayne) used to be one.
The topic: Bain Capital and corporatism.
Inevitably, Adam Smith was invoked, and Brooks provided quotes from “The Theory of Moral Sentiments,” Smith’s 2nd treatise on capitalism. The discussion revolved around pure mathematical economics, and also the very real human element often neglected in corporatism.
Brooks asserted, via Smith’s “Moral Sentiments,” that capitalism must incorporate ethics, making the employee at least as important as profits.
That’s the basic gist. For full nuance, the podcast is here.
My main point, which was perhaps left unclear, was this: Yes, in a perfect world, where laissez-faire capitalism holds sway, employers have a moral and ethical duty to be good stewards. Of their profits, of the investors’ and shareholders’ capital, of the surrounding community and environment, and of their workers.
And, yes, even in today’s borderline-fascist market system, where the Federal government dictates the quantity of raisins in raisin bread, employers should feel some moral duty to be good stewards of their surroundings and employees.
But notice I say should. Not “must.”
In any enterprise, there is a “risk vs. reward” dynamic. In business, an employer must factor in numerous variables and absolutes.
Some of these variables include the payroll tax rate, regulatory compliance costs, raw materials costs, and labor costs. And those are but a few. The absolutes are simply that all of those costs *will* exist, and all are factored in before a wage rate is set.
The key component, in laissez-faire capitalism and Smith’s “Moral Sentiment” is choice.
For instance: an employer chooses to pay good wages. This, in turn, attracts laborers. Due to good wages and working conditions, productivity soars and profits are realized.
Now, the employer faces a choice. Does he, after paying back capital investors, drive those profits into higher wages? Or building improvements? Or maybe expansion?
The choice is his. Likewise, when business slows, he faces a choice. Reduce labor costs, or take it on the chin to maintain jobs? This is a gutwrenching decision, despite outward appearances. The employer chose these workers for a reason, after all.
Enter “Moral Sentiments.” The Left twists Smith into a pretzel, implying firing workers to maintain profits is immoral (and even evil). Brooks argued that they should do everything in their power to keep workers on payroll, even if it means operating at a loss.
And therein lies the rub: “should” versus “must.” A recurring debate between Federalists and #Proglodytes. The latter prefer force. Always.
Moral Sentiment, however, is as personal as religious faith, is it not? How, then, can we argue against choice, in that regard?
This means understanding, in our current market system, weighed down by the heavy boot of government, how few choices businessmen actually have.
Consider this: perhaps Moral Sentiment *would* be more widespread, if government intrusion were not so universal? Just perhaps?
Remember, my Federalist brothers, private choice is the very essence of capitalism. AND Moral Sentiment. Government always hinders both.