Why Inequality? Who is To Blame?

Perhaps the stickiest objection to capitalism is that it produces – maybe for some, even thrives – on inequality.  The rich get richer and the poor stay poor.

A recent comment in The Economist complained that “The poor among us have stopped catching up.”  The system has failed them: extreme poverty has barely fallen since 2015.  The magazine, however, does not blame capitalism for this failure of economic growth.  Rather, the magazine puts the blame on governments for shifting from markets to industrial policy and trade restrictions.  It seems constricting markets puts the brakes on wealth creation – just as Adam Smith pointed out 249 years ago.  Indices of economic freedom have been largely flat in most of Africa and South America.

In addition, other data has surfaced that points the finger away from capitalism to culture as the incubator of economic inequality.  It seems that individual behaviors contribute to individual outcomes in life.  As Smith assumed and German sociologist Max Weber made explicit, values drive behaviors and behaviors bring about outcomes.  Social and human capital accounts are the foundations for the creation of financial capital.

A simple example is the entrepreneur.  Starting a new business requires finance, but what are the conditions which permit obtaining monetary capital?  Usually, it is the intangibles – the reputation of the entrepreneur, the practicality of his or her business model, trust that consumers will buy the new product or service with ready money, availability of labor skill and quality of worker diligence, etc.

In a recent article, Professor Roland Fryer of Harvard argued that choosing your identity or living with an identity provided to you by family, community and history, determines much of what your life will be like.  “How you view your role in the world will affect your choices.”  He follows the innovative thinking of George Akerlof, a Nobel laureate, on the complexity of rational economic decision-making once identity perceptions and priorities are taken into account.  Individuals intend to gain from both material outcomes and actions that affirm their ego-identities.  “A corporate job might offer financial stability, but if it conflicts with an individual’s identity as an environmentalist or feminist, the mismatch can lead to dissatisfaction and underperformance.  Lab experiments have shown that people may opt for lower-paying jobs if it means greater congruence with their social group or might choose consumer goods that signal affiliation to a particular identity, despite higher costs.

Then, a recent study published by the National Bureau of Economic Research in the U.S. concluded that the more you work, the more you earn when the major determinant of total lifetime working hours is individual choice – values, again, driving behaviors and life outcomes.

Those who work more, earn more because they spend more time acquiring skills.

Thirdly, religion adds weight to the scales of human capital.  Pious students have higher grades, better attendance records and complete more years of college (The Economist, August 17, 2024, p. 19).  Religious communities tend to be learning communities.  They read together, engage in dialogue together and build all kinds of social skills.  I recall my more conservative Jewish friends in high school and college with all the hours they put into reading and debating the Talmud.

Within nuclear families, the more religious siblings perform better in school.

Doing better in school also happens with faithful atheists.

A Very Important New Book by Dean Recep Senturk

I have just learned from one of our fellows, Recep Senturk, dean of the College of Islamic Studies, Hamad Bin Khalifa University, Doha, that he is publishing an important new book on the topic of Adamiyyah.

Adamiyyah is a humanistic approach to application of Qur’anic teachings, an approach most needed at the present time.

Here is the pre-order flyer for his book:

You may recall from my report of our meetings at the Vatican in May that Recep spoke then about Adamiyyah at the Pontifical Institute for Arabic and Islamic Studies.  The audience was most impressed with and moved by his ideas.

I hope you will make time to buy his book and read it.

Selling Values in An Open Society Can Be a Risky Business Model

A recent CBS television program in the U.S. raised eyebrows and caused controversy within its culturally elite market segment.  Ta-Nehisi Coates was interviewed on his new book, which includes his vehement resentment of Jews in Israel.  Coates is African American, famous for his 2014 article in The Atlantic that America, because of its white racism and slavery, owes African Americans lots of money as reparations.  The CBS host – Tony Dokoupil – was not sympathetic in his questions to Coates and drew attention to Coates’ prejudice.

That put CBS in an awkward position of taking sides.  As the old movement song asked: “Which side are you on Boy, which Side are you on?  Do you march with Martin Luther King or do you “Tom” for Ross Barnett?”

Was CBS selling negative feelings about Israel and Jews or was it defending the cause of Israel as a Jewish homeland?  Hard to have it both ways.

But taking a side is selling a cultural product.

The interview led to dissension, recriminations and tensions in the CBS staff over what the company’s business should be, over what journalism is.  Really, the in-house debate was over the business model of CBS.  What is the product that CBS is selling – objectivity or emotions and prejudices?  What customer base do they seek to please?  Is that chosen product line profitable? What brand proposition does a company market when it associates itself with a cause or a lifestyle?  Is CBS selling news or entertainment?

One might argue that as long as CBS is meeting the needs of customers – a stakeholder constituency – it is a moral capitalist.  Or not?  What if its customers – like industrial polluters or individual drug users and alcoholics – generate negative impacts on society?  Some people’s values and beliefs make them despicable to others.

When values and lifestyles become products, business risks can rise, for not everyone likes every cultural or political value or personal lifestyle.  The business can follow its own values, but at an opportunity cost – it might make more money by selling the morality or the politics which are preferred by a different customer constituency.

But in closed societies, say theocracies or under intolerant authoritarian regimes that censor speech and seek to keep thinking straight and narrow, the choice of a business model is easier to come by: just do what the regime wants and don’t make waves by stirring up values and different opinions

Report on a Remarkable Discovery: Moral Capitalist Thinking in 16th Century Korea

Attached here is my report on last week’s conference in Jinju, South Korea, on a remarkable development in capitalism – a Korean cultural approach to entrepreneurship, which drew on inspiration from a 16th century scholar centering his views on human-centeredness.

What the Koreans have achieved in providing well-being for their people and supporting a global economy at the same time deserves, in my judgment, our praise and appreciation.

Lessons to Be Learned from South Korea

I have been in the small southern city of Jinju in South Korea for a conference on entrepreneurship and wanted to send you the Declaration of Action.

I was a speaker, along with my Caux Round Table colleagues Lester Myers from Marymount University, Washington, D.C., Prae Piromya from the Sustainability and Entrepreneurship Center at Sasin School of Management, Chulalongkorn University, Bangkok and Claire van den Broek of True Price in The Netherlands.

I have learned much and will send you a longer report shortly.

The Economist: In Line with Moral Capitalism

I just read the current issue of The Economist while flying to Washington, D.C. to speak on a panel about Ukraine on ethics and economic development during a war.

I found it aligned with our thinking about moral capitalism in three articles.

First, about the virtue of capitalism in bringing forth innovation and new technologies:

Two years after ChatGPT took the world by storm, generative artificial intelligence seems to have hit a roadblock.  The energy costs of building and using bigger models are spiraling and breakthroughs are getting harder.  Fortunately, researchers and entrepreneurs are racing for ways around the constraints.  Their ingenuity will not just transform AI.  It will determine which firms prevail, whether investors win and which country holds sway over the technology.

Large language models have a keen appetite for electricity.  The energy used to train OpenAI’s GPT-4 model could have powered 50 American homes for a century.  And as models get bigger, costs rise rapidly.  By one estimate, today’s biggest models cost $100m to train; the next generation could cost $1bn and the following one $10bn.  On top of this, asking a model to answer a query comes at a computational cost—anything from $2,400 to $223,000 to summarize the financial reports of the world’s 58,000 public companies.  In time, such “inference” costs, when added up, can exceed the cost of training.  If so, it is hard to see how generative AI could ever become economically viable.

There is no need to panic.  Plenty of other technologies have faced limits and gone on to prosper, thanks to human ingenuity.  The difficulty of getting people into space led to innovations that are now used on Earth, too.  The oil-price shock in the 1970s encouraged energy efficiency and in some countries, alternative means of generation, including nuclear.  Three decades later, fracking made it possible to reach oil and gas reserves that had previously been uneconomical to extract.  As a consequence, America now produces more oil than any other country.

Already, developments in AI are showing how constraints can stimulate creativity.

Secondly, poverty needs good capitalism to put it out of its misery:

Since the Industrial Revolution, rich countries have mostly grown faster than poor ones.  The two decades after around 1995 were an astonishing exception.  During this period, gaps in GDP narrowed, extreme poverty plummeted and global public health and education improved vastly, with a big fall in malaria deaths and infant mortality and a rise in school enrolment.   Globalization’s critics will tell you that capitalism’s excesses and the global financial crisis should define this era.  They are wrong.  It was defined by its miracles.

Today, however, those miracles are a faint memory.  As we report this week, extreme poverty has barely fallen since 2015.  Measures of global public health improved only slowly in the late 2010s and then went into decline after the pandemic.  Malaria has killed more than 600,000 people a year in the 2020s, reverting to the level of 2012.  And since the mid-2010s, there has been no more catch-up economic growth.  Depending on where you draw the line between rich and poor countries, the worst-off have stopped growing faster than richer ones or are even falling further behind.  For the more than 700m people who are still in extreme poverty—and the 3bn who are merely poor—this is grim news. …

As the world has turned towards intervention, so the chosen instrument for poor countries has become trade restrictions, as IMF research shows.  This contains an uncomfortable echo of the failed development plans of the 1950s, built around freezing out imports rather than embracing global competition.  Fans of industrial policy will point to East Asia’s “tiger economies,” such as South Korea and Taiwan.  Yet, both embraced harsh global competition.  And several African countries that tried to copy their industrial policies in the 1970s failed miserably.

The world will pay for its failure to learn from history.  Rich countries will cope, as they usually do.  For the poorest people, however, growth can be the difference between a good life and penury.  It should not be a surprise that development has stalled as governments have increasingly rejected the principles that powered a golden era.  Nobody will suffer more as a result than the world’s poor.

Thirdly, woke antiracism and DEI programs are losing their welcomed seat at the table for discussions of what Americans must rightly do.  I argued 2 years ago that DEI, in particular, did not fit with the universalistic and humanistic ethics of moral capitalism:

The simplest way to measure the spread of woke views is through polling.  We examined responses over the past 25 years to polls conducted by Gallup, the General Social Survey (GSS), Pew and YouGov.  Woke opinions on racial discrimination began to grow around 2015 and peaked around 2021.  In the most recent Gallup data, from earlier this year, 35% of people said they worried “a great deal” about race relations, down from a peak of 48% in 2021, but up from 17% in 2014.  According to Pew, the share of Americans who agree that white people enjoy advantages in life that black people do not (“white privilege” in the jargon) peaked in 2020.  In GSS’s data, the view that discrimination is the main reason for differences in outcomes between races peaked in 2021 and fell in the most recent version of the survey, in 2022.  Some of the biggest leaps and subsequent declines in woke thinking have been among young people and those on the left.

The columnist, Lexington, ended that weekly commentary with these thoughts on white supremacy:

The left is due for a reckoning over the reckoning on race.  The protesters have moved on, the book sales have dried up, the DEI departments are emptying and the elite white groveling and self-flagellation … have been, on the left, politely memory holed.  Yet, a movement concerned with structural injustice has achieved little structural change, whether to policing or the black-white wealth gap.  Was it all, in the end, just a performance?

Video of Dayton Award Presentation

These are not the happiest of times for the United States of America or for our world, for that matter.  There are two wars underway between rival peoples with unhappy historic memories of each other.  Many say that the post-World War II international order is not what it once was.

Already several years ago now, a friend of the Caux Round Table said to me: “Everyone knows that we are living at the end of an age.  They don’t know what the next age will bring or how they will need to adjust.  So, everyone just does today what they did yesterday.”

In such circumstances, as the tides of time shift their flow, discernment is needed more than ever – discernment of what is happening, discernment of what is fundamental, discernment of what is eternal and discernment of the truth.

As important as discernment is having the courage to act on the truth.

With these moral parameters in mind, our board selected reporter Liz Collin of Alpha News to receive the 2023 Dayton Award for her documentary, The Fall of Minneapolis.

Her work in that documentary provides discernment of disturbing facts and conditions in our new America.  Bringing before the public a different perspective on a tragic event was an act of civic courage.

You may watch the event here.

Many thanks to Loren Swanson, one of our regular participants, for recording it.

Pope Francis in Indonesia Speaks in Alignment with the Ethics of Prophet Muhammad in His Covenants to Respect Christians

Last week, Pope Francis visited Indonesia, home to the world’s largest community of Muslim faithful.  There, the Istiqlal Mosque is connected by a tunnel to the Catholic Cathedral of Our Lady of the Assumption – a marvelously apt metaphor for the respect shown to Christians by the Prophet Muhammad in his covenants and the respect for Muslims shown by Pope Francis in the “Document on Human Fraternity for World Peace and Living Together” and his encyclical, Fratelli Tutti.

I attach here a copy of the Pope’s remarks on his visit to the Mosque and the Cathedral.

At this time of war in Gaza and Ukraine and with dark clouds of aggrandizement gathering over the South China Sea, may we all learn to open our hearts and minds to others, as the Pope and the Prophet have requested of us.

Moral Capitalism in 16th Century Korea!

I have been invited to speak on moral capitalism at a conference in Jinju, Korea.  The organizers sent to me a short paper on the important role of Jinju and its cultural heritage in leading the remarkable economic development of the South Korean people over the last 60 years.  Something was different in the regional culture of Jinju, related, as you can learn, to the thinking of Jo Shik, who lived and taught in the 1500s.

Now, a very important lesson taught us by the Korean peoples, north and south, needs to be taken to heart: why has South Korea been so successful and the North not at all?

One answer is governance.  Capitalism can’t work its benefits under political conditions of rent extraction (government as landlord) and moral, political and cultural oppressions.

Here is stunning evidence of the difference made by political and cultural systems on the quality of human living:

The darkness in North Korea is more than not having electricity.

Learning about the philosophy of Jo Shik may give us a clue as to the origins of South Korean excellence.  Morality might, after all, make a difference in the quality of our living in community.