At its core, capitalism is moral

At the most foundational level, capitalism is moral.

The only way to succeed in the long-term is to treat customers well and honestly. That will provide money to the company to continue paying staff and vendors as well as leaving a profit for owners.

If a company does not deliver a quality product or service that customers value with higher utility to them than the cost to provide by the company, then the company won’t be around long.

At the core level, it is moral to satisfy your customers with profit left over.

CPA Ron Baker makes this point more eloquently than me in his LinkedIn article, Are Corporations Socially Responsible?

By the way, the answer is yes.

(Cross-posted from my other blog, Attestation Update.)

If a corporation provides value to customers, both the company and customer will be better off after the transaction than before. That is a positive social value.

Doing so, within the framework of the law (as Milton Freidman points out) is the duty of a business and it is also highly socially responsible.

Mr. Baker quotes Michael Novak in Business as a Calling explaining that a business has responsibilities internally and externally. (Just added that book to my to-be-read-soon list.)

I will quote Mr. Novak:

Seven Internal Responsibilities:

  1. To satisfy customers with goods and services of real value
  2. Make a reasonable return on the funds entrusted to the business corporation by its investors.
  3. To create new wealth.
  4. To create new jobs.
  5. To defeat envy through generating upward mobility and putting empirical ground under the conviction that hard work and talent are fairly rewarded.
  6. To promote invention, ingenuity, and in general, “progress in the arts and useful sciences” (Article I, Section 8, U.S. Constitution).
  7. To diversify the interests of the republic. Crucial to preventing the tyranny of the majority.

Seven Responsibilities from Outside Business:

1. To establish within the firm a sense of community and respect for the dignity of persons.

2. To protect the political soil of liberty.

3. To exemplify respect for law.

4. Social justice

5. To communicate often and fully with their investors, shareholders, pensioners, customers, and employees.

6. To contribute to making its own habitat, the surrounding society, a better place.

7. To protect the moral ecology of freedom.

I will try to expand on those responsibilities in the future. For the moment….

If you are able to meet those responsibilities, you will thrive.

If you drop the ball on some, you will have distress and start drawing attention from corporate raiders, regulators, media, or all of them simultaneously.

If you completely blow off some or many of them, you will be seeing your company’s name in the Wall Street Journal as you negotiate settlements with the government or plaintiff’s attorneys.

Want an illustration?  Count how many of those external responsibilities have been ignored by the huge banks who are writing billion dollar checks to the U.S. government. Mr. Novak’s theory suggests there is a causation link. I agree.

Even with some companies failing on some portion of their internal or external responsibilities, capitalism is fundamentally moral.

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