Peter Kammler: If capitalism is to last,we'd better all behave

COOMMENT

Critics of market capitalism are often portrayed as left-wing, anti-consumerism, perhaps even hankering after communism. To dispose of market critics so glibly is either dishonest or uninformed.

Communism is one of the large failed experiments of mankind. It spanned 70 years and involved a third of the world's population. It failed spectacularly. But here is the fallacy: capitalism is seen as victorious, perhaps as one would see a winner in a boxing match. Yet we have the impression that every day we are sinking deeper into the quicksand.

Health scandals, balance of payments deficits, rising violence, failing education and a crumbling infrastructure suggest another analogy between socialism and capitalism, that of two patients: one has died and the other is not feeling too well.

The worst aspect of the socialist economy was inefficient production. This is no surprise when, for example, the producers of heavy machinery were paid by weight, not the functionality of their product.

In contrast, capitalism produces goods and services efficiently. Unfortunately, the inefficiencies of capitalism exist nevertheless. They are manifest outside the production process, where the financial costs of society's shortcomings are rising relentlessly. Truancy and crime through lack of parenting, increasing mental disorientation in people who cannot cope with the contradictions in society, sociopathic behaviour - all these are inefficiencies that cost us dearly.

Why, then, is our free-market capitalism in such disarray? Both socialism and capitalism are based on theoretical behaviour, which in practice does not happen.

Socialism was based on the assumption that people would put the interest of the community above their own. It failed. Capitalism is based on the opposite assumption - that people act in their "enlightened self-interest". This, of course, does not preclude altruism, which, too, is a form of self-gratification.

When people are left to their own devices, they pretty much know what is good for them - and they act accordingly. This is what Adam Smith postulated. Then something happened that Smith could not foresee - advertising appeared.

Persuasive imagery, in particular on television, makes us act not in our own best interest but in the interest of those who pay for the advertising. With the advent of persuasive advertising, Smith's "invisible hand", the very foundation of market capitalism, became paralysed.

Of course, there were always people who gambled, but never before was gambling portrayed as harmless family fun. Of course, there were always people much in debt, but never before was getting into debt promoted as the desirable, and clever, thing to do.

The flood of advertising for junk food is urging us to eat even more, as if we all were anorexic. Never mind that more than half the population is overweight.

We have advertising that likens a car to a speeding bullet, or shows a family sedan on the Indianapolis racetrack - and then we whinge about the road toll.

The ultimate triumph of marketing is the teenager who clobbers another, not because he needs shoes but to snatch at a certain brand of shoes.

The notion that we are all beavering away in our best interest, thus maximising the wealth of the nation, is pure fiction. Egged on by a relentless avalanche of advertising and marketing, people drive like maniacs, overeat, drink too much, and gamble.

This is not rational behaviour, on which capitalism so utterly depends. Neither does it "allocate human resources, capital and raw materials to the most efficient use", as is so often claimed as a merit of the free market.

Quite the opposite. Advertising, the lubricant of the market economy, has become its biggest threat.

Every year billions of dollars could be put to better use if people would drive courteously and defensively, eat wholesome food, stay away from illegal drugs and use legal drugs sparingly, stop mistreating their spouses and children and generally behave in an ethical manner.

The list is long, and the savings would be large. So large that, if all New Zealanders lived by a code of ethics, we would catapult to the top of the OECD statistics.

The American Lewis Mumford spells it out: "The capitalist scheme of values transformed five of the seven deadly sins of Christianity - pride, envy, greed, avarice, and lust - into positive social virtues, treating them as necessary incentives to all economic enterprise, while the cardinal virtues, beginning with love and humility, are rejected as bad for business."

Denuding capitalism of ethical obligations creates a systemic conflict: acting at the borderline of the law, or even going beyond it, rewards the individual, while at the same time it imposes far higher financial losses on society.

The economic success of a nation depends on how many of its citizens are law-abiding and how many are not.

There is no viable alternative to market capitalism on the table. So, if we have to stick with it, we had better get it right.

First, we must reassert our prerogative to set our values and goals by political process. We should not leave it to the market, the advertisers and public relations and marketing companies. Secondly, we must behave honourably. All of us, including the property tycoon who exhorts the public to buy shares in his company while secretly unloading his own.

Once we fulfil these requirements, the market can work as it was designed: to help us efficiently to achieve our goals and ambitions. If we fail, capitalism will implode under its own societal costs and inefficiencies.

No one can say when this will happen, or what will ultimately trigger the event. But it will be as cataclysmic for us as the collapse of communism was for the East.

* Peter Kammler, a retired Warkworth businessman, is responding to Denis Dutton's article on the "staggering success" of capitalism.