"Adam Smith" lecture
"Capitalism is a Half-Built Structure."
Even if we can overcome the immediate crises we face, we will still be left with fundamental questions about the effectiveness of capitalism in tackling such unresolved problems as persistent poverty, lack of access to health care and education, and epidemic diseases. In my view, the theoretical framework of capitalism that is widely accepted today is a half-built structure—one that prevents Adam Smith's "invisible hand" from operating as he believed it should.
In a sense, we have chosen to disregard half of Smith's message. His Wealth of Nations has drawn all the attention while The Theory of Moral Sentiments has been largely ignored. This book could have provided the foundation for the other, missing half of the market — the half of the market that caters to the social consciousness of the people.
The present theory of capitalism holds that the marketplace is only for those who are interested in profit only. This interpretation treats people as one-dimensional beings. But people are multi dimensional, as Adam Smith saw two and a half centuries back. While they have their selfish dimension, at the same time, they also have their selfless dimension. The theory of capitalism, and the marketplace that has grown up around the theory, makes no room for the selfless dimension of the people. If the altruistic motivation that exists in people could be brought into the business world, there would be very few problems that we could not solve.
Adam Smith's Theory of Moral Sentiments begins with the assertion that "How selfish so ever man may be supposed, there are evidently some principles in his nature, which interest him in the fortunes of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it. Of this kind is pity or compassion, the emotion we feel for the misery of others, when we either see it, or are made to conceive it in a very lively manner. That we often derive sorrow from the sorrows of others, is a matter of fact too obvious to require any instances to prove it; for this sentiment, like all the other original passions of human nature, is by no means confined to the virtuous or the humane, though they perhaps may feel it with the most exquisite sensibility. The greatest ruffian, the most hardened violator of the laws of society, is not altogether without it."
Smith then asks that most fundamental question: Why do we regard certain actions or intentions with approval and condemn others? At the time, opinion was divided: some held that the only standard of right and wrong was the law and the sovereign who made it; others, that moral principles could be worked out rationally, like the theorems of mathematics.
Smith took the view that people are born with a moral sense, just as they have inborn ideas of beauty or harmony. Our conscience tells us what is right and wrong: and that conscience is something innate, not something given us by lawmakers or by rational analysis. And to bolster it we also have a natural fellow-feeling, which Smith calls "sympathy". Between them, these natural senses of conscience and sympathy ensure that human beings can and do live together in orderly and beneficial social organizations.
With these ideas in mind, we can see that Smith's other great book, The Wealth of Nations, has probably been misinterpreted. Smith's thesis in that book is generally summarized as an argument that all will be well if people are allowed to follow "self-interest". The world has interpreted "self-interest" as equal to profit maximization. But with human beings as they are, driven by conscience and sympathy as well as the desire for profit, we see that "self-interest" includes both profit maximization and social contribution. That's what Adam Smith elaborated in The Theory of Moral Sentiments, which attached great importance to justice and other moral virtues, perhaps to clarify the boundaries of "self-interest".
The present structure of economic theory does not allow these other dimensions of people to play out in the market place. I argue that, given the opportunity, people will come into the market place to express their selfless urges by running special types of businesses specifically designed to improve the lot of humanity in general. In the absence of such an opportunity in the market place, people will express their selflessness through charities. Charitable efforts have always been with us, and they are noble, and they are needed. But we have seen that business has a greater ability than charity to innovate, to expand, and to reach more and more people through the power of the free market. Imagine what we could achieve if talented entrepreneurs and business executives around the world devoted themselves to goals such as ending malnutrition, providing shelter for the homeless, and eradicating disease.
Glasgow University, December 2008