The Ethics of Capitalism - Social Europe Journal

and education and a potential oversupply
of other goods such as drugs, cigarettes
and alcohol. The capitalist system
also has a tendency to polarise
wealth by over-rewarding success and
cruelly punishing failure with starvation,
crime and death.
The problems of market failure and
the cruel fatal effects of economic failure
can to a certain extent be arrested
by the introduction of the government
sector. The raising of taxation effectively
redistributes wealth from individual
agents within the economy in
order to provide crucial provision such
as the police, fire and ambulance services
as well as the army, education and
health services.
Ethics and Law
The interplay of ethics and law within
the economy delineates the extent to
which economic agents are able to
operate freely. One example of this is
the development of the ‘neighbour
principle’ developed by Lord Atkin in
the establishment of tort law. Prior to
the case of Donoghue v Stevenson
1932, it was not possible for a third
party to a contract to sue a manufacturer
for damages suffered as a result of
negligence.
The law, however, accommodated
the growing sense of unfairness at this
state of affairs and was subsequently
amended, initially in the Courts and
eventually in statute. Another example
is the establishment and legal recognition
of Trade Unions, the plethora of
discrimination legislation including the
Sex Discimination Act 1975, the Race
Relations Act 1976 and the Disability
Discrimination Act 1996.
As society develops a moral sense of
fairness, laws are introduced to ensure
that the capitalist agents within the
system must comply with the new legislation.
It appears that the modern
capitalist system, with its recognition
that self-interest requires a degree of
redistributive taxation has the answers
to all economic problems.
What went Wrong
The increasing complexity of the postindustrial
West led to the demise of
the classic Marxist/Riccardian analysis
of political economy. Capitalist enterprises
developed in such a way as to
create a new class of economic operator,
an evolution from the owner/
worker split of 18th, 19th and early
20th century model.
This managerial class became a necessary
component of a system which
required specialist ‘executive’ power to
be delegated. The growth of multinational
companies and the increase of
‘shareholders’, led to a shift in economic
power away from owners to managers.
Most ‘owners’ of the largest companies
in the world are now the ‘workers’
themselves via their pension funds
and life insurance policies.
The shift of power from owner to
this new class of management eventually
led to a hiatus of accountability.
The massive increase in shareholders
also led to a significant decrease in the
extent to which managers were held to
account. The rates of executive remuneration
soared to grotesque multiples
rendering Chief Executive Officers
earning several hundred times the
salaries of other company employees.
Executive incentive schemes were created
by a cabal of insiders designed solely
to enrich themselves at the expense of
other employees and shareholders.
Government attempts to constrain the
rapid growth of these managerial aristocrat
packages such as the Cadbury and
Greenbury Reports were swept aside.
In 2008 it became apparent there
had been insufficient regulation of the
private sector managerial aristocrats.
The government had lacked the political
will or the understanding of the
consequences of unchecked power in
the boardrooms of our major commercial
institutions. The consequences of
unrestrained greed from a new economic
class had wrought massive damage
to a system envisaged by Smith,
Hayek and other classical economists.
25 Social Europe Journal Summer 2009