By Andrew Bernstein
A proper understanding of capitalism is sorely lacking today. In order to gain such understanding, it is best to start with a true story that captures the spirit and sense of life of capitalism. Then it is possible to extract the deeper principles it embodies and the intellectual causes that give rise to it.
In the early 19th century, Robert Fulton, the inventor of the steamboat, held a monopoly granted by the state of New York to run all steamboat traffic in that state. The state-franchised monopoly legally prevented competition from entering the field, thereby keeping prices artificially high to the detriment of the customers, who detested the monopoly.
But in early 19th century America, men believed in their inalienable rights as free U.S. citizens, and did not bow compliantly to arbitrary government authority. In 1817, a New Jersey businessman hired 23 year old Cornelius Vanderbilt to ferry passengers between New Jersey and New York City in a direct challenge to the monopoly’s power. For the next six years, a cat-and-mouse game ensued between the monopoly and its challenger, with the young Vanderbilt at the epicenter of the struggle.
Vanderbilt hoisted a flag on the masthead of his boat, the Bellona, reading: “New Jersey must be free!” and for sixty consecutive days eluded capture by authorities who sought to arrest him and confiscate his vessel. To the delight of the passengers who loved his lower-priced service, he used every possible trick or subterfuge to avoid capture. He hid near the gangplank, then scurried off when police officers boarded so their papers could not be served. He constructed a secret closet in which to hide, so when law officers boarded him in the bay they found only a young woman steering the boat, whom they questioned to the taunts and derision of the other passengers.
The upshot was that in 1824, the Supreme Court – in the famous case of Gibbons vs. Ogden – declared the Fulton monopoly illegal, ruling that the states did not have the authority to regulate interstate commerce.
The breakup of the state-franchised monopoly led to a burst of technological innovations in the steamboat industry. With the market open and profit possible, entrepreneurs rushed in with new ideas, including tubular boilers rather than expensive copper ones and a cheaper fuel – coal – to replace cordwood. As costs dropped, steamboat companies were able to lower their fares.
Starting his own company, Vanderbilt proceeded to reduce rates all over the Northeast. He lowered the standard three-dollar fare on the New York to Philadelphia route to one dollar. He lowered the New York to Albany fare from three dollars to one, then to ten cents, then to nothing, making profit exclusively from the sale of food and drink on board. Commodore Vanderbilt’s fortune was made in open competition on a free market, without government aid or franchise, to the immense betterment of his customers.
Vanderbilt’s dashing, swashbuckling style, akin to that of a commercial buccaneer, has never been lacking among entrepreneurs, and captures what may be thought of as the sense of life or emotional ethos of capitalism. Capitalism is driven by bold, risk-taking entrepreneurs, and the Vanderbilt saga displays the essence of their spirit. 1
But what are the fundamentals of the capitalist system in literal, not emotional, terms? What are the principles that explain and give rise to the swaggering “can do” optimism of capitalism’s great inventors, innovators and entrepreneurs, the joyous confidence that enables them to make technological and industrial breakthroughs that create better lives for both themselves and millions of customers? The immediate pre-condition is political freedom.
Political freedom entails an individual’s legal right to engage in any activity he chooses, so long as he does not initiate force or fraud against other men. Capitalism is the system of freedom. It is the system in which the government is legally prohibited from initiating force against its citizens, confining itself to the protection of their rights. This was the great moral achievement of the U.S. Constitution and its Bill of Rights, providing American citizens an unparalleled degree of political liberty. Alexis de Tocqueville, who toured America in the 1830s, discussing freedom of the press in the United States, observed “that among the Americans I find the utmost national freedom combined with local freedom of every kind.” 2
But what is not clear to many people is the nature of freedom. For centuries, political philosophers have written about the virtues of freedom, and for millenia men have hungered, fought and died for it. However, no one until Ayn Rand defined its essential nature. In her influential novel, Atlas Shrugged, and in such non-fiction works as Capitalism: the Unknown Ideal, she shows that the fundamental attribute of freedom is: the absence of physical coercion. For men to be free, they must be able to act on the best rational judgment of their own minds without physical force initiated against them. “Freedom, in a political context, has only one meaning: the absence of physical coercion.” 3
A man’s freedom of action may be violated either by private individuals or by the government, and by one means only – by the initiation of force against him. Private individuals who initiate force are criminals, and men form governments to protect themselves from these. But the government itself is potentially the gravest danger to an individual’s freedom, because it has a legal monopoly on the use of force in a given geographical region. A government that is dictatorial threatens men in a manner far worse than that of a common criminal. Murderous tyrants like Adolf Hitler, Joseph Stalin, Mao tse Tung and Pol Pot killed vastly more innocent victims than did thugs like Al Capone and John Gotti. It is against the government that men’s freedom needs to be most urgently protected. It is well in this regard to remember George Washington’s famous warning that, “Government, like fire, is a dangerous servant.”
For men to be free, the initiation of force must be banned from human life. This is just as true of governmental force as of its private use. The use of force must be legally limited to retaliation against those who start it. Human beings require a written Constitution with a Bill of Rights to protect them from the state. The Constitution must legally outlaw the initiation of force by the government, as well as by private citizens. Capitalism requires, as a matter of principle, a universal ban on the initiation of force.
“America’s founding ideal was the principle of individual rights. Nothing more – and nothing less. The rest – everything that America achieved, everything she became, everything ‘noble and just,’ and heroic, and great, and unprecedented in human history – was the logical consequence of fidelity to that one principle. The first consequence was the principle of political freedom, i.e., an individual’s freedom from physical compulsion, coercion or interference by the government. The next was the economic implementation of political freedom: the system of capitalism.” 4
A right is a moral principle applicable only in a social setting. Robinson Crusoe, alone on his desert island, has no need and no use of such a concept. Men can derive great advantages from living in human society – education, love, family, friendship, a division of labor economy and many other benefits. But if men do not respect an individual’s rights, if they initiate force against him, then society will stop being a boon and commence being a hazard. An individual is vastly better off alone on a desert island than living in Hitler’s Germany or Stalin’s Russia, because he is at least free on the island to use his reason to confront the problem of survival in the face of physical nature. There are no evil men using brute force to apprehend him and construct camps for his confinement or extermination. For society to fulfill its promise as a potential boon to a man, it must respect his rights to life and property; more, it must protect them.
“A right is a moral principle defining and sanctioning a man’s freedom of action in a social context.” Without the concept of individual rights as inalienable properties of each individual, there exists no moral constraint preventing social intercourse from degenerating into the rule of brute force. Human society then devolves into either murderous tyrannies of a Nazi or Communist ilk, or the incessant violence of lawless chaos warned of by the English philosopher Thomas Hobbes, and perpetrated recently in such countries as Lebanon, Somalia and Rwanda. 5
The rule of law is fundamental to capitalism. The courts must protect all manifestations of individual rights, including property rights and the sanctity of contracts. They must protect honest men from thieves and criminals of every variety, whether they commit fraud or overt acts of physical coercion, whether they are private individuals or government bureaucrats or regulators. This is an especially urgent point in the early 21st century when former Communist nations seek to move to a capitalist system without first instituting the rule of law. Whether in states of the former Soviet Union or in Albania or elsewhere, if gangsters control significant elements of a society or its economy it will be impossible to protect property rights and enforce contracts. Legitimate businessmen will then be killed or intimidated, private investment will be withheld, and the attempt to implement a free economy will founder. Any hope to create a capitalist system rests on the antecedent requirement of establishment of the rule of law. In the absence of this, all such attempts are doomed to fail.
To fully understand capitalism – its nature and genesis – it is necessary to know the source of its fundamental principles. Where did the ideals of individual rights and political-economic freedom originate?
The principle of individual rights – including the right to property – on which America was founded first became dominant during the Enlightenment. The 18th century period in Western culture was an era stressing reason, science, progress and the rights of man. In science, the ideas of Isaac Newton, and in philosophy, those of John Locke, were widely influential.
Locke’s Two Treatises of Civil Government, published in the 1690s, argued that human beings have inalienable rights that they are born with, that belong to them simply by virtue of being men. Chief among these are the rights to life, liberty and property. It follows then that a foremost moral responsibility of all is to leave other men free to live their lives and dispose of their property without interference.
Locke’s ideas were widely studied and admired on the other side of the Atlantic. “A succession of thinkers [during the Enlightenment] developed a new conception of the nature of government. The most important of these men and the one with the greatest influence on America was John Locke. The political philosophy that Locke bequeathed to the Founding Fathers is what gave rise to the new nation’s distinctive institutions.” Such writers, patriots and statesmen of America’s Revolutionary Period as Thomas Paine, Benjamin Franklin, John Adams, Thomas Jefferson and James Madison (among others) applied Locke’s ideas to the specific circumstances of England’s North American colonies, helping to found the new republic on the principle of the rights of man. 6
But the essence of the Enlightenment, and of its influence on the new nation, was its uncompromising commitment to man’s faculty of reason. For this, the 18th century philosophes owed much to Newton, whose identification of fundamental laws of nature showed 18th century thinkers how much was possible to the human mind. The leading thinkers of the 18th century – from Voltaire, Diderot and Adam Smith to Franklin, Jefferson and Thomas Paine – hungered for the sight of applied human intelligence finally resolving the long intractable problems of poverty, famine and disease.
Nor did the 18th century philosophes flinch from the logical though controversial political conclusions of their principles. If man was a rational being, they argued, he was preeminently capable of self-government, and must be free from tyranny of all kinds. Locke, the Enlightenment thinkers held, had established in his Essay Concerning Human Understanding that all human knowledge, regardless of complexity or technicality, originated ultimately in ordinary sense experience, and not in innate ideas or divine revelation. That being the case, the knowledge required for right living took no specialized expertise, no cultivated capacity to interpret Holy Scripture or explicate principles deeply embedded in the human mind. It took rather observation of nature and the application of rational intelligence, which were capacities possessed by every individual.
Unfounded, therefore, were traditional claims of clergy, aristocrats, kings and royal scholars to either divinely-inspired knowledge or a divine right to rule that superseded the minds and rights of commoners. In this regard, Diderot’s Encyclopedie, that compendium of knowledge for all intelligent men regardless of class or social rank, was the perfect expression of the philosophes’ most cherished epistemological and political principles. The era of individual thought and individual liberty was at hand. Free minds required free political institutions, among them notably the rights to freedom of speech, freedom of the press and freedom of religion.
Further, if man was a rational being, and not an impulse-riddled creature, inexorably driven by lascivious urges and sinful, fleshly desires, as the Calvinists claimed, then he required no all-powerful authority, whether transcendent or worldly, to curb his passions and enforce his obedience to moral law. Human beings could be left free to pursue their private gain, because there was no need to fear or prohibit the self-interested activities of rational – as opposed to irrational – men.
The potency and value of man the rational being means the potency and value of the individual who exercises his reason. Therefore, man the individual – man the rationally thinking individual – had self-discipline, moral worth and an inviolable right to his own life. The individual, not the aristocracy, the Church, the king or the state, was now seen to be the unit of social value. A government existed to serve its individual citizens, not, as formerly thought, the other way around. “Throughout history, the state had been regarded as the ruler of the individual – as a sovereign authority…an authority logically antecedent to the citizen and to which he must submit. The Founding Fathers challenged this primordial notion. They started with the premise of the primacy of the individual.”
As Locke had written, and Jefferson later affirmed, individuals had certain inalienable rights, among which are, according to the provisional constitution of New Hampshire in 1766, “the enjoying and defending of life and liberty; acquiring, possessing and protecting property; and in a word, of seeking and obtaining happiness.” 7
The only economic system logically correlative to such political liberty was and is a free market. If men have a right to their own lives – and are not the chattel of state or church – including the right to pursue their own happiness, then it follows that they must possess the right to own the product of their intellectual and bodily effort, and to exchange their work and its products voluntarily for whatever other goods they desire. Capitalism is freedom – and this involves freedom of the marketplace fully as much as freedom of the mind.
Such leading thinkers of the European Enlightenment as John Locke and Adam Smith understood the importance of the rights to private property and the pursuit of profit. In a famous passage, Locke argued that when a man puts forth his effort to transform the raw materials of nature into finished products – such as using the wood of trees to construct a cabin or build furniture – the end result belongs to him, and he can dispose of it as he sees fit. “Every man has a property in his own person. This nobody has any right to but himself. The labor of his body and the work of his hands…are properly his. Whatsoever he removes out of the state nature has provided, and left it in, he has mixed his labor with, and joined to it something that is his own, and thereby makes it his property.” 8
Similarly, Adam Smith, as fully of the Enlightenment in his thinking as in his lifespan, advocated a system of “natural liberty.” In his masterwork, The Wealth of Nations, he revolutionized the science of modern economics. On grounds of both economic utility and the rights of man, Smith endorsed economic liberty – the rights of the individuals to compete freely and peacefully, free of coercive interference from the government. In arguing against state-imposed apprenticeships and licensing requirements, for example, in favor of the unfettered rights of workers to enter a field, and of employers to hire them, Smith echoed the teachings of Locke: “The property which every man has in his own labor, as it is the original foundation of all other property, so it is the most sacred and inviolable…and to hinder him from employing this [labor] in what manner he thinks proper without injury to his neighbors, is a plain violation of this most sacred property. It is a manifest encroachment upon the just liberty of both the workman, and of those who might be disposed to employ him.” For the government to coercively restrict a man’s entry into a profession is a policy “as evidently impertinent as it is oppressive.” 9
Like most of the other philosophes, Smith supported freedom and the rights of man as a universal principle, with virtually no exceptions. Tariffs, government-supported monopolies, guild restrictions on the labor market, legally-enforced apprenticeships – all of these had to go. Such freedom of the marketplace, Smith was confident, would lead to increasing wealth for all; it would result in “universal opulence which extends itself to the lowest ranks of the people.” 10
Capitalism has been instituted on three continents – in Western Europe, North America and Asia. These nations – England, France, the United States, Japan, Hong Kong, etc. – are the world’s freest countries. Their citizens enjoy freedom of speech, of the press and of intellectual expression. They have freedom of religion. Similarly, they possess economic freedom, including the right to own property – their own home or farm – to start their own business, and to seek profit. These countries hold free elections, and their governments are subject to the rule of law.
The Enlightenment upheld three fundamental principles: the rational mind, the rights of the individual, political-economic freedom. These principles form the essence of capitalism. Capitalism is – historically and philosophically – the political/economic system of the Enlightenment.
The results, in action, have been dramatic. With the mind glorified and liberated, it has created a technological, industrial and agricultural revolution in the Western world. Thinkers such as James Watt, Edward Jenner, Samuel Morse, Cyrus McCormick, Thomas Edison, Alexander Graham Bell, and the Wright Brothers developed the steam engine, the cure for smallpox, the telegraph, the reaper, the electric lighting system, the telephone, the airplane respectively – and such a list merely scratches the surface of life-promoting advances created during the capitalist era. As Ayn Rand established in Atlas Shrugged, the mind is man’s instrument of survival, and the mind requires freedom. When the mind is free, it creates abundance. Capitalism, the system of freedom, is the system of the mind – or, stated conversely: capitalism, the system of the mind, is the system of freedom.
This is the fundamental reason that the capitalist nations have created the enormous prosperity they have, a staggering amount of wealth undreamed of in the pre-capitalist eras and societies. The correlation between freedom and wealth in the world today is stunning. The Index of Economic Freedom, published jointly by the Wall Street Journal and the Heritage Foundation, shows this clearly. The Index ranks 155 nations in terms of freedom and shows the economic results. For example, Hong Kong, ranked number one in freedom, has a per capita GDP of $21,726. In less than 50 years, the freedom of Hong Kong fueled its growth from destitution to wealth, including for millions of penniless refugees who fled mainland Communism. Singapore, ranked number two in freedom, enjoys a per capita GDP of $31,139. The United States, ranked number five in freedom, has a per capita GDP of $31,201. 11
The freedom of the capitalist countries has created the most upwardly mobile societies of history, with hundreds of millions of human beings currently enjoying middle class comforts – people whose ancestors were poor just one or two centuries ago, or, in some cases, just decades ago. Further, according to the U.S. government, the poverty threshold for a family of four in 1997 was an annual income of roughly $16,400, i.e., at or below a per capita income of $4,100 per year. This certainly constitutes poverty by the standards of capitalist nations. But what are the standards of non-capitalist nations? 12
What are the conditions of the non-capitalist countries? The first issue to be examined is a society’s attitude toward the underlying cause of wealth – the Enlightenment principles of respect for the mind, individual rights and political-economic freedom. The second is the economic results of those attitudes.
In feudal Europe, prior to the capitalist revolution of the late 18th century, serfdom and its legacy dominated. Peasants were often legally tied to the land and possessed few rights. Commoners, more broadly, were subordinated to the king, aristocrats and Church, and free thought was punished. Voltaire, for example, was imprisoned for his revolutionary ideas, as was Diderot. D’Alembert, the great French scientist and writer, was intimidated by the authorities into temporarily severing his association with the Encyclopedie. Galileo was threatened with torture and Giordano Bruno burned at the stake for supporting scientific theories that clashed with the teachings of the Church. Feudalism – the dictatorship of the aristocracy – suppressed the mind, abrogated individual rights and denied political-economic freedom.
With the minds and actions of commoners – the overwhelming preponderance of men – severely circumscribed, the results were predictable. Poverty, famine and disease were endemic during the feudal era. For example, the bubonic plague wiped out almost one-third of Europe’s population in the 14th century, and recurred incessantly into the 18th. Famine, too, was widespread in Europe until the 18th century, killing sizable portions of the population in Scotland, Finland, Ireland – and causing misery and death even in such relatively prosperous countries as England and France. Regarding living standards, one expert, Angus Maddison, states that economic growth during the centuries 500-1500 was non-existent; and that per capita income rose by merely 0.1 percent per year in the years 1500-1700. In 1500, Maddison claims, the European per capita GDP was roughly $215 per year; in 1700, roughly $265. Contrast such economic stagnation with the capitalist epoch, the years 1820 to the present, in which Western Europe and the world’s other freest nations’ total economic output increased sixty times, and per capita income grew to be 13 times what it had been previously. The European population roughly tripled during the 19th century while per capita living standards steadily rose. 13
Cures for disease, economic growth, agricultural and industrial revolutions – the means by which human beings rise above deprivation and misery – are products of the rational mind operating under conditions of political-economic freedom. Capitalism provides those conditions; feudalism did not.
But today, despite the lessons of the past, political dictatorships even worse than those of feudal Europe proliferate across the globe. For example, though Communism today may be in its death throes, it butchered 100 million innocent victims in 80 years and still enslaves and murders innocent men in China, in Cuba and in North Korea. More broadly, statism – the subjugation of the individual by the state – exists everywhere. Brutal theocracies and military dictatorships in the Middle East murder their own citizens, and sponsor terrorist attacks against the world’s freest country, the United States. In Africa, individual rights and liberty are non-existent – the continent bristles with military and/or tribal dictatorships. For too long the situation was no different in Haiti and only slightly better throughout Latin and South America, where sundry tin pot dictators were and remain the rule. Today, more than 225 years after the American Revolution, freedom is virtually unknown around the globe
In North Korea, Communist oppression is unspeakable. As merely one example, political prisoners are enslaved, starved and used for target practice by guards and troops. In Iraq, under Saddam Hussein, the torture and execution of political prisoners was routine. In Afganistan, the Taliban denied the right to an independent life to the entire female gender, oppressing by that policy alone one/half of the country’s population. Further, to be brutally honest, any degree of freedom is virtually unknown on the African continent.14
One example is Sudan. Its dictator, Omar Hassan Ahmed al-Bashir, continued the policies of one of his predecessors, Jaafar Nimeri, persecuting the non-Muslim and black population of the country’s south. Human Rights Watch Africa labeled Sudan’s record on rights “abysmal,” and reported that all forms of political opposition were banned, both legally and by means of systematic terror. The war against blacks and Christians in the south continued, including the bombing of villages. As part of the ongoing war, the ancient practice of slavery was revived there, as well. “Slavery in the Sudan is in part a result of a 15-year war by the Muslim north against the black Christian and animist south. Arab militias, armed by the Khartoum government, raid villages, mostly of the Dinka tribe. They shoot the men and enslave the women and children. Women and children are kept as personal property or they’re taken north and auctioned off…In Sudanese slave markets, a woman or a child can be purchased for $90.” Such U.S. organizations as the American Anti-Slavery Group have a stopgap mission of buying, at a cost of $85 each, black women and children whom the Sudanese Muslims capture, enslave and torture. The purchase made by these groups emancipate the slaves. 15
In Rwanda in 1994, Hutu tribesmen slaughtered hundreds of thousands of innocent victims, mostly members of the Tutsi tribe, hacking them to pieces with machetes, then stacking the corpses in piles like so much cordwood. The Hutus butchered 800,000 men, women and children in 100 days, averaging 8,000 murders per day in “the fastest, most efficient killing spree of the twentieth century.” 16
The non-capitalist nations of the Communist and 3rd Worlds are brutal dictatorships, often wracked by bloody, internecine tribal warfare, in which the principles of individual rights and liberty are utterly unknown. Crucially, the rational mind is repudiated in these societies in favor of tribalism, faith and unremitting brute force. It should, therefore, come as no surprise that millions of individuals subsist in the most abysmal poverty in these countries – a destitution undreamed of in the capitalist world for almost 2 centuries.
In Sudan, for example, per capita GDP is $296.00 per year; in Rwanda, it is $227.00; in Communist North Korea, where nighttime satellite photographs reveal utter darkness because the country lacks electricity, conditions are just as grim. Despite massive aid from the capitalist West, tens of thousands of human beings, by conservative estimate, starved to death there in recent years. By contrast, the freer, semi-capitalist South Korea enjoys living standards more than 30 times those of the North and is perpetually free of famine. Similarly, the per capita standard of living for Cuban-Americans in Miami is roughly 20 times what it is for those trapped in the prison of Castro’s Cuba. In Communist Vietnam, per capita GDP is $331 and the economy is stagnating, while its freer, semi-capitalist neighbor, Thailand, enjoys a per capita GDP 8 times that and growing. Just as there is a stunning correlation in the world between freedom and prosperity, so there is an equally stunning correlation between statism and destitution. By the standards of capitalist America, poverty is reached when one descends to the threshold of $4,000.00 per year – an income 10 or 12 or 15 times the average figure in non-capitalist countries of both the past and the present. 17
The non-capitalist nations of the world today are more brutally repressed even than those of feudal Europe, which explains why, despite the global diffusion of American technology, their living standards are virtually identical to that earlier era. When the mind is suppressed, technological, industrial and agricultural development – the achievements of the mind – are stifled.
Capitalism protects the inalienable rights of the individual and is, therefore, the only moral system. Because it respects the minds and rights of all individuals, it thereby creates vast wealth, and is the only practical system. By contrast, statism systematically violates the rights of individuals and is, therefore, immoral. Because it suppresses the mind and violates men’s rights, it thereby causes abysmal poverty and is utterly impractical.
Men’s choice today is stark: freedom and prosperity – or statism and misery. Capitalism, and the Enlightenment principles upon which it rests, if and when chosen, will bring freedom and prosperity to the oppressed masses of the 3rd World in the exact manner it did to the oppressed masses of feudal Europe.
Examples of this can be seen in the Communist dictatorships of Asia. During the blood-drenched rule of Mao tse Tung, the regime’s atrocities were unspeakable; at least 65 million innocent individuals were butchered by the Communists during that 30 year reign of terror. Nobody knows how many of that total died when Mao forcibly attempted to collectivize the peasants “during the ill-named Great Leap Forward – estimates range from 20 million to 43 million dead for the years 1959-1961…Mao and the system that he created were directly responsible for what was…the most murderous famine of all time, anywhere in the world.” 18
To speak exactly, there were no “living standards” under Mao; there were only “dying standards.” Conditions only began to improve under the slightly less brutal regime of Deng Xioping. Beginning in the late 1970s, Deng permitted some elements of private ownership and profit seeking. Farmers could consume or sell for profit whatever they produced above state quotas. The result was that agricultural production increased by more than 50 percent in just 16 years.
Deng further permitted the establishment of Special Enterprise Zones (SEZs) with some elements of free enterprise. Guangdong, one such zone, showed an economic growth rate of almost 14 percent, significantly above the national average. The province, possessing a fraction of China’s total population and resources, produced 30 percent of the country’s exports. Even these limited capitalist elements produced dramatic results. When Deng came to power in 1978, the country was desperately poor: 60 percent of its population subsisted on less than a dollar a day. The new elements of free enterprise caused the country’s per capita income to double between 1978 and 1987, and then to double again between 1987 and 1996. Today, China ‘s per capita GDP is $727, vastly below neighboring Taiwan’s figure of $12,461, but an enormous leap above the less-than-$200 total it was under undiluted Communism. 19
China remains a brutal dictatorship, and as such it can never equal vastly freer, semi-capitalist Taiwan’s living standards. But the creative abilities of rational men are such that even minimal amounts of freedom enable them to dramatically raise living standards in an otherwise destitute statist regime.
The situation is similar in Communist Vietnam. There, the minimum wage averages out to $134 annually; but Nike, who owns Vietnamese factories – misleadingly dubbed “sweatshops” by anti-capitalist ideologues – pays an average salary of $670, a sum that is double the country’s per capita GDP. “In the poorest developing countries, someone working for an American employer draws no less than eight times the average national wage.” Further, Western companies in the poorest countries pay their workers, on average, twice what the corresponding native firms pay. 20
The difference is the technology made affordable by the greater capital accumulated and invested by American and other Western firms. In general, white collar workers using personal computers, the Internet, fax machines and global conference calling capabilities can be far more productive than ones lacking these advances and working on old-fashioned typewriters. Similarly, blue collar workers using steam shovels, cranes and power tools can be far more productive than ones relying merely on shovels and pick axes. Based on the subsequent vastly increased output of labor, the workers’ effort is worth more to the company, which can then afford to pay higher wages. It is the advanced technology and more modern plants that Nike deploys that enables it to pay destitute 3rd World workers significantly higher wages.
Technological and industrial advances – the achievements of the minds of men operating under conditions of political-economic freedom – are raising living standards in 21st century Asia just as they did in 18th century Europe.
The real problem in 3rd World countries is not that Western companies exploit their workers – they do not; it is that indigenous dictatorial regimes – whether communist, socialist, theocratic, feudal or military – oppress their own citizens. The moral imperative is not to pressure Nike, et. al., into “better treatment” of its employees; it is to overthrow the communist, theocratic or military despots and establish capitalism, the only system that respects the minds and the rights of the individual.
Capitalism is freedom – and freedom leads to prosperity. The moral is the practical. On the other hand, statism is oppression – and oppression leads to destitution. The immoral is the impractical. After two centuries of capitalism, 80 years of socialism and centuries of feudalism, the scores are on the board and the contest is over. The alternatives open to human beings are stark: freedom and prosperity – or statism and misery. Men have only to make their choices.
References
1. Burton Folsom, Myth of the Robber Barons (Herndon, Virginia: Young America’s Foundation, 1991), pp. 2-5.
2. Alexis de Tocqueville, Democracy in America (New York: Vintage Books, 1990), p. 113.
3. Ayn Rand, Capitalism: the Unknown Ideal (New York: Penguin Books, 1967), p. 46.
4. Ayn Rand, The Ayn Rand Letter (Gaylordsville, Ct.: Second Renaissance Inc., 1979), p. 109; quoted in Harry Binswanger, ed., The Ayn Rand Lexicon (New York: New American Library, 1986), p. 13.
5. Ayn Rand, The Virtue of Selfishness (New York: New American Library, 1964), pp. 92-93.
6. Leonard Peikoff, The Ominous Parallels (New York: New American Library, 1982), pp. 109-110.
7. Ibid., pp. 108-110.
8. John Locke, Two Treatises of Government (New York: New American Library, 1963), Section 27, pp. 328-329.
9. Adam Smith, The Wealth of Nations, ed. Edwin Cannan, (New York: The Modern Library, 1994), p. 140.
10. Ibid., pp. 12 and 629. Mark Skousen, The Making of Modern Economics: The Lives and Ideas of the Great Economic Thinkers (Armonk, NY: M.E. Sharpe, 2001), pp. 13-43.
11. Gerald O’Driscoll, et. al., The 2001 Index of Economic Freedom (Washington, D.C.:
The Heritage Foundation and The Wall Street Journal, 2001), pp. 197-198, 327-328,
377-379.)
12. Robert Rector, “The Myth of Widespread American Poverty,” www.heritage.org
13. Angus Maddison, Phases of Capitalist Development (New York: Oxford University
Press, 1982), pp. 4-7.
14. Stephane Courtois, et. al., The Black Book of Communism (Cambridge, Mass.:
Harvard University Press, 1999), pp. 547-564.
15. Ronald Segal, Islam’s Black Slaves: The Other Black Diaspora (New York: Farrar, Straus and Giroux), pp. 199-223. See also the American Anti-Slavery Group’s website: www.anti-slavery.org
16. Samantha Power, “Bystanders to Genocide,” The Atlantic Monthly, September 2001.
17. Gerald O’Driscoll, The 2001 Index of Economic Freedom, op. cit., pp. 143-144, 229-232, 317-318, 341-342, 357-358, 387-389. Peter Brimelow, “The High Cost of Castro,” Hoover Digest 1998 No. 3. William Ratliff, “Cuba: Semper Fidel,” Hoover Digest 2001 No. 4. Robert Levine and Moises Asis, Cuban Miami (New Brunswick, NJ: Rutgers University Press, 2000), pp. 3-6, 93-105. Carlos Seiglie, “Cuba’s Road to Serfdom,” The Cato Journal, Vol. 20, No. 3. Miguel Faria, M.D., Cuba in Revolution (Macon, Georgia: Hacienda Publishing, 2002), pp. 177-194 and passim.
18. Stephane Courtois, The Black Book of Communism, op. cit., pp. 487-496.
19. Daniel Yergin and Joseph Stanislaw, The Commanding Heights (New York: Simon and Schuster, 1998), pp. 194-216. Gerald O’Driscoll, 2001 Index of Economic Freedom, op. cit., pp. 127-132.
20. Johan Norberg, In Defense of Global Capitalism (Stockholm: Timbro, 2001), pp. 202-205.
