The Columbia University author and economist answers the Big Question, “Does the free market corrode moral character?”
I have read, for instance, and I’m sure a lot of people have, Simon Schama’s great book on the embarrassment of riches about the Dutch [IB] who accumulated wealth but didn’t spend it on themselves. They spent it on social purposes. That’s sort of the Calvinist approach.
Where I come from, in India, I come from the state where the great Mahatma Gandhi was, and he inherited a tradition, didn’t create one, but basically people would accumulate wealth like mad. They wouldn’t pay you a penny more than the market would in terms of wages, but all the money they made went into education, health. They did even things like dry farming experiments to improve agriculture, and so relying on the government.
We have an enormous tradition in several communities.
They have lots of places from which you get the least important one, in my opinion, is where you work.
I found studies where people actually had responded to increased incomes as a result of improved export market earnings, not by saying wickedly that now I can get so much more money by putting my child to work that I’m going to take one more child out of school and put her into work.
Instead they were reacting virtuously and saying, look, now that I’ve got more money from the same amount of export of rice, for instance, from Vietnam, I’m now going to be able to take one child away from work and put her into school instead. So going the other way.
On the contrary, globalization, which of course depends on being able to exploit markets and people whose market is open and so on, where multinationals would naturally play a role because they go out and, create jobs and so on.
But all of this is actually good for you. It’s good for morality, because what is morality if it’s not about improving the lives of people?
And if you could create jobs and pull people out of poverty into more gainful employment on a sustained basis, that’s a good thing, not a bad thing. It has to be consistent with your moral value.
Poorer parents are even more mindful of this than rich parents, because rich parents will leave a whole lot of money behind for their children. But the poor parents do invest in children and, as we all know from the usual, [casual] empiricism, that a poor man will share his last burrito with you and the rich guy probably wouldn’t let you sit down at his banquet.
Adam Smith pointed out that men have self-interest. He didn’t say that was the only thing they have, because in moral sentiments, he does point out that man is a more complex creature. So he’s more like what Rabbi Hillel said, which is, if I’m not for others, what am I? And if I’m not for myself, who will be?
So we are all a mixture of self-interest and the less base mode, as it were, namely altruism and empathy. But it’s in different mixtures.
Adam Smith’s great genius was to say that insofar as you’re pursuing your self-interest, you’re basest motive as it were, you might say that we can devise an institutional structure, namely markets. But it wasn’t just markets in this case. It was more complex person on the economic design as well, but by and large, markets.
That is the way in which you translate that self-interest or greed, if you want to call it, into useful, socially desirable outcomes.
That was his genius.
It got frayed at the margin because of all these CEOs with large sums of money. But I don't think it was the inequality part that was really the problem. What they saw was people just getting out a failing enterprise with large sums of bonuses and payments, often with insider information, clearing out first.
The way I see it, it’s nothing to do with inequality or justice, but we Indians and Asians and so on, are not brought up like Americans and Western children. You guys actually are brought up on the notion that when a ship is going down, the captain should be on board and he would sink with the boat and the passengers go away in lifeboats. Here they see it exactly the other way around. The passengers are going down, the workers, etc., are going down with the ship and the captain is going away in the lifeboat.
I think that is viscerally, it’s just so clearly unethical in terms of the way you were brought up to think about what should be the way you behave in a crisis.
I was never brought up on this notion, being a good person. Well, I never even thought about it when I was a child. But all of you have been brought up that way. That is something which really created, finally, a big sense that somehow the system was unethical.
I think America’s ideology, I often say, is lack of ideology. Y
The editor of The Economist was asked [by] Sir Geoffrey Crowther at one time, “What’s the philosophy of your magazine?” He said, “We are in the extreme center.”
And that’s what Americans are, basically. And you look at the way they’re reacting to crisis, how to handle it.
[Nicolas] Sarkozy starts reading “Das Kapital,” and my reaction was, I thought every Frenchman, when he was at school, read Marx and Proust and Voltaire. How come he lost out on a good education and has to read “Das Kapital” now?
But he makes an ideological point, you see? Whereas I just settle down to business, you’re accused of socialism. Well, so be it. We’re just going to do whatever is necessary to get hold of this crisis.
Recorded on: November 11, 2008