Does capitalism need to be reined in to protect individuals, or is capitalism the highest expression of individualism? Excerpt from “Is Capitalism Moral? A Debate,” October 22, 2012.

YARON BROOK, Ph.D., Executive Director, The Ayn Rand Institute; Co-author, Free Market Revolution: How Ayn Rand’s Ideas Can End Big Government

DAVID CALLAHAN, Ph.D., Co-founder, Demos; Author, The Moral Center: How Progressives Can Unite America Around Our Shared Values

RUTH SHAPIRO, Ph.D., Principal, Keyi Strategies; Social Entrepreneur in Residence, The Commonwealth Club – Moderator

BROOK: Capitalism, I would argue, is a system of individual rights in which property is privately owned. It is the system that this country was founded upon. It is the system that protects the individual’s right to his own life, his own liberty and the pursuit of his own happiness. Morality, I believe, is the set of values that individuals pursue in order to make their lives the best that they can be, in order to achieve their ultimate happiness.

What is the barrier that stops people from being able to pursue their values, to pursue the things that they believe will lead to their happiness? It’s coercion and force. Violence is the primary [obstacle] that stops us from being able to pursue what we think will make our lives the best that they can be. So what we want is a government that extracts that coercion, that extracts force from society, that protects us from the use of coercion by other people. That is a capitalist government and therefore that is why capitalism is a moral system. Any attempt by a government to coerce us into pursuing some other social agenda, coerce us into helping the poor, or regulating businesses, or any form of redistribution, or any form of control is immoral because it introduces that immoral element – coercion, force, violence – into human relationships. That is the one thing that needs to be extracted. Now, I could talk a lot about the fact that capitalism works and that’s also part of why it’s moral; it works, it uses the good, raises the standard of living; we’re all better off, the poor are better off, everybody’s better off – everybody who’s willing to work, everybody who’s willing to be productive is better off when we are free, when we are left alone.

CALLAHAN: Our question for tonight is a little misleading. Capitalism can’t really be moral or immoral, because it’s not a person; it’s a system, or it’s a tool and it’s run by us, by human beings. So the real question for tonight is whether we’re structuring capitalism, whether we’re using markets in the right way to create the most moral society that we can, the best society we can; are we using the tool properly? And my view is that we are not – not by a long shot. In fact, I think we’re doing a terrible job of using this tool. As I see it, capitalism, or the version of it that we have embraced here in America lately, is really undermining all the moral values that we care about.

Today’s form of capitalism is undermining the ethics and integrity of Americans. A few years ago I published a book called The Cheating Culture – I was at The Commonwealth Club this April talking about it. [In it] I try to explain why there’s been so much cheating and dishonesty and these huge financial frauds in our business sector and on Wall Street – nonstop scandals for years. I argue that there’s so much cheating today in business not because people are less moral in some fundamental way, but rather because of certain aspects of today’s form of capitalism – in particular, high levels of inequality and insecurity, a harsh dog-eat-dog economy, and less regulation. Cheating simply makes more sense when the winners are getting these huge rewards and everybody else is just trying to keep their heads above water.

Look at business: CEOs today make fortunes that executives of a generation ago could never have dreamed of and, frankly, would have been ashamed to ask for. The top hedge fund managers today are making, some of them, several billion dollars a year.

We live in a winner-takes-all society in which the top 1 percent make more money than the bottom 100 million people put together. Given how big the rewards have become in this new gilded age, it shouldn’t be so surprising that more people will cheat and lie and hurt others to get those rewards. There’s been a tendency to demonize these executives and these Wall Street people who orchestrated these scandals and frauds. I don’t think these people are evil; I don’t think they’re that much different than anybody else. For the most part they are ordinary people who are exposed to extraordinary temptation. George Washington once said, “Few men have virtue enough to withstand the highest bidder.” And lately the bidding in this era of inequality – the bidding for our integrity, our morality – has been getting higher and higher.

Meanwhile a great many people cheat just because they’re trying to survive in today’s increasingly harsh economic climate. Think of those mortgage brokers – the lower-level people we read about who were pushing sub-prime loans on some of the poorest people in America. Why would you try to get some African-American 80-year-old grandmother into an 11 percent interest rate when she has good enough credit to get a 6 percent loan? Because you want to pay your mortgage and keep your head above water – that’s the kind of economic system that we’ve somehow found ourselves in.

The system we have is hurting our morals, but it doesn’t have to be this way; [capitalism] is a tool that we control. We can make different choices. It’s precisely because it is a tool that doesn’t have its own soul, that doesn’t have its own moral compass, that we can’t let the market set the rules for our society and our morality. We need to set the rules for the market, and that means an active role for government, which is our way collectively to set rules and to ensure that our human values are reflected in our economic system, not destroyed by it.

SHAPIRO: [In your understanding of capitalism and morality], is there a role for a community, and what is that [role] in an ideal world?

BROOK: I think the community is whatever the members of the community voluntarily choose to make of it. I make a distinction between [this and] government, which is an instrument of force, an instrument of compulsion – in which we get together, decide what to do together, and freedom allows us to do whatever we want to do together. But this notion that cooperation is built on selflessness is the opposite of the truth. Cooperation is built on self-interest; cooperation is built on mutually agreeing to pursue a particular goal together so that both parties benefit from it. I don’t want other people sacrificing for me so that we can go get something, and I don’t want to sacrifice for other people. This is about trade – it’s about win-win relationships, and in my view the appropriate way to deal with other people is through trade, and a community is one in which we trade values that lead to a mutually beneficial outcome.

SHAPIRO: So a public good is one that everyone agrees to support?

BROOK: I don’t believe there is such a thing as a public good. I’m not sure what a public good is. We might decide, for example, there’s a community that came together around The Commonwealth Club because they viewed it as really important to have a debate, to have discussions, to raise the intellectual level for the community – it’s voluntary, some people join, but there are lots of people out there who don’t care and they don’t join and no one’s forcing them to join; and that’s fine. We’ve created a community here that’s about a particular thing and the common goal or good is debate that we’ve voluntarily chosen. Other communities might form around other goals.

SHAPIRO: In both of your books, you call for a fairly informed and knowledgeable public to make these decisions to engage in community. What kind of knowledge do you need to have, and how do you get it? Who’s responsible for getting it?

CALLAHAN: This is a perfect illustration of my point [about what happens] when you leave important functions of society up to the market. In the United States today, we let free enterprise handle that whole business of ensuring that the citizens are informed in our democracy and have the information they need to make choices. Our press is more private than any media in the industrialized world; we don’t have anything comparable to the BBC or other sorts of public [broadcasting] systems. As a result, you turn on the news and either it’s toxic, shouting talking heads; or it’s “if it bleeds it leads”; or it’s just Paris Hilton and rich people and celebrities 24/7. That’s a perfect example of what happens when you just say, Well, the market can solve the problem.

BROOK: So Greek public television did a lot to help them out? I wouldn’t exchange us with Europe in terms of knowledge about what works and what doesn’t, any day. But look, yeah, people are ignorant. They’re ignorant exactly for the opposite reason David just articulated; it’s because our mechanisms for conveying knowledge are all controlled by the government. And the primer here is public education. Who’s responsible? The individual is responsible. Each individual is responsible for the knowledge they have. But who’s conveying the knowledge today? What’s the expectation? The expectation is that you go to school and you learn something. Well the fact is you go to school, and you don’t learn stuff. You don’t learn how to read, write and do math – the basic stuff that makes all other knowledge possible. Our public education system is a disaster, it is pathetic; it is run by government; it is run by exactly the entity that David would like to run our television stations and our educational programs on TV. The thought is scary.

The more government gets involved in these activities – and this is true economically, it’s true in education, it’s true everywhere – the more corruption you actually get. It’s no accident that the cheating that David describes happens in regulated industries and doesn’t happen in unregulated industries. Here in Silicon Valley, which is the least regulated industry in the United States, there is very little cheating that goes on. In the financial world, the most regulated industry in the United States, there’s a lot of cheating that goes on. You remember Enron, WorldCom and those guys? Do you remember what industry they were part of? All of them in the late 1990s were in the same industry, the telecommunications industry. They’d all just gone through what we call “deregulation,” but is actually reregulation – changing the rules – so they all became in bed with politicians to try to get the rules in their favor instead of somebody else; there’s no free market in these industries, and therefore there’s more corruption.

SHAPIRO: In world history, what period of time and place is the most reflective of what you’d like to see?

BROOK: In terms of political freedom, 19th-century America, particularly after the Civil War, given that we had slavery, which I think we all agree is a pretty bad thing. But in the 20th century I would say the Hong Kong of the ’50s, ’70s, ’80s and even today is a pretty good thing. Hong Kong was this fishing village 100 years ago with nothing there, no natural resources, nothing. [Now] people risk their lives to get there from all over Asia, and Hong Kong has no significant safety net, none of the redistribution policies we have today. Basically [they have] protection of property rights and that’s it, and the per capita Gross Domestic Product (GDP) there is equal to [that of the] United States, partially because we’ve sort of stagnated as they’ve increased. I’m sure David has all the horror stories of the 19th century which I’d be happy to answer one after the other in terms as why they are nowhere near as horrible as he claims, and some of them were actually virtuous. By the way, I would take a 19th-century American population core education over today’s products of the public schools.

SHAPIRO: I lived in Hong Kong for a number of years and one of the reasons that the average per capita income is high is that there are extremely wealthy people there as well as quite poor people. So in your worldview there are winners and losers?

BROOK: No. I don’t consider being poor in Hong Kong [being] a loser and I don’t think the poor in Hong Kong consider themselves losers. So in my world there are winners and winners. Some people make more money than others; I don’t consider life [to be] about money. You can be poor and incredibly happy; you can be rich and incredibly miserable. Life is about happiness and how successful you are in living your life, not in accumulating dollars.

CALLAHAN: We have a low-wage economy in this society where tens of millions of people are not making a living wage. They’re working full time and they aren’t making enough money. Why aren’t they making enough money? Because it’s profitable for corporations not to pay them a living wage. Companies pay what the going rate is and it’s often below what people need to actually survive. Here we have a country that believes completely in work, and we have tens of millions of people who are working full time, and a quarter of all people who work full time in this country make under $20,000 a year. That’s not enough money.

SHAPIRO: Is it all right to make a lot of money? Is it all right to invent something that changes the world?

CALLAHAN: Absolutely. I have no problem with people making a lot of money. The problem I have is when their huge fortune is dependent on the exploitation of others, and I would cite the Walton family as an example. The Walton family today, one family in America, has a combined net worth of $90 billion, which is more than the bottom 40 percent of all Americans put together. How did the Walton family, which built the Wal-Mart retail empire, make all that money? They made all that money, in part, by paying extremely low wages, which, by the way, are only possible for them to pay in many cases because we have the Earned Income Tax Credit, we have the State Children’s Health Insurance Information Program [SCHIP], and we have other government subsidies that allow Wal-Mart workers to actually survive. A lot of these Wal-Mart workers, the only reason they survive is that they’re taking advantage of these government subsidies that are designed for low-income workers. I don’t think that that’s OK. That’s not a moral society. That’s something more akin to a dystopian society.

BROOK: I would love to get rid of SCHIP and get rid of the Earned Income Tax Credit. Let me say this. No company – no family in history – has done more to help the standard of living of poor people than has Wal-Mart. Wal-Mart has made it possible for poor consumers in this country to buy products at unthinkable values.

SHAPIRO: I have two daughters who are 18 and 17, and it’s amazing to me that their friends don’t want to go to Wall Street, don’t want to make a lot of money, but are really committed to making the world a better place. You may have heard the statistic that 18 percent of Harvard University’s graduating class applied for Teach For America. It might not only be because we’re in a recession. There is a sense that youth are taking a different path. Are you finding that there are generational differences in the reactions to your work? And if so, how do those play out?

CALLAHAN: The millennial generation is definitely more optimistic and believes more in doing things together; they believe strongly in government; they believe more strongly in volunteerism; they have a sense that we can do big things together.  I think that my generation – gen X – and baby boomers have a lot more cynicism. In many ways the legacy of the ’60s [is that] we came through this age of extreme individualism. The Left was [all about] “do your own thing” and the counterculture, and the Right [embraced the idea that] greed is good, self-interest is virtuous. I think we’re seeing pushback to that. We’re seeing it in these millennial kids.

BROOK: If the two of you are right, we’re in deep, deep trouble. It’s a horrible trend. But going back to the way you stated what you stated – making the world a better place. What could [do more to] make the world a better place than inventing new products and helping fund them and facilitate their distribution across the world by coming up with a Wal-Mart or coming up with an Intel or working on Wall Street to create the IPOs that made that possible? What could make a better place than going out there and creating wealth – not just for yourself, because that’s not how wealth is created. Making wealth for yourself is fine, is good, but by making wealth for yourself, you’re making millions and millions and millions of people better off. The wealth-creation system has done more for poor people, middle class people, for everybody than any other system. If you want to make the world a better place, go make lots of money.