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The Market Economy and Profit Are Not the Problem

I recently attended a seminar at which a speaker expressed his strong conviction that a deep conflict exists between seeking God’s kingdom and conducting a successful business enterprise. The speaker then went on to blame the market economy for promoting a system inimical to the Christian faith. Casting the market economy in the image of a giant octopus, he described how human beings become the fish caught in its ubiquitous tentacles. Even if a trapped fish manages to lop off an ensnaring tentacle, another one grows right back to menace the fish again.

As a Christian businessman, I find this caricature of corporate chief executive officers and the market economy as symptomatic of a larger problem that exists within our society today, where we often jump to conclusions based on “sound-bites” of information and attack symptoms rather than the underlying maladies that manifest these symptoms. I suggest that this caricature is unfounded, the result of a minority’s bad practices elevated to represent the general standard. The market economy and a chief executive officer’s corporate goals can be, and usually are, consistent with the goals involved in building God’s kingdom. Casting off the tyranny of these negative caricatures is necessary to see how the free market can be compatible with God’s kingdom.

Choice Is a Gift From God

Choice is the basis of the market economy. Free will, the capacity to choose the course of a person’s own behavior among alternatives, was an integral part of Creation. In the Garden of Eden, before the Fall, Adam and Eve were endowed with free will. Thus, it is important to note that free will does not result from sin. In fact, it was Adam and Eve’s use of free choice that ushered sin into the world. Thus, having been part of human nature before the Fall, our ability to choose is innately good. We must accept this free choice as a precious and sobering gift from God.

Exactly why God instilled in us the power to choose for or against his will is a mystery. Whatever the reasons, it is clear that we as individuals are supposed to choose for ourselves how best to do God’s will. Our status then, as individuals, is significant. While God’s sovereignty extends over all principalities, nations, ethnic or demographic groups, corporations, political parties, unions, universities, families, and all other associations, these institutions are each nothing more than a collection of individual human beings. The free choice of the individuals within these institutions ultimately influences the action of these institutions. Each of us, as members of at least one of these collections of human beings, has a significant responsibility to exercise his or her ability to choose sagaciously. A business entity neither harms nor benefits anyone apart from the bad or good choices of its owners and employees.

The market economy emerges naturally from our ability to choose, because choice allows people to produce and consume goods or services as they see fit. When people have a need or desire, someone will eventually recognize and try to fill it. By empowering both producers and consumers to be able to make autonomous decisions through individual participation, markets possess flexibility foreign to any centrally planned system. Consumers drive this flexibility by exercising their free choice to buy or not to buy. Markets, either formal or informal, will always exist, one way or another, regardless of external controls. If need or desire reaches a certain pitch, barriers and restrictions in the formal market economy will not stop people from trying to satisfy this need or desire. They will resort to trading in the informal—underground or illegal—economy. Like it or not, having been created with free will, the impulse to establish market systems arises from a core part of our human nature. The challenge God has placed before us is not to abolish markets, but to influence market incentives, that is, the people’s right to free choice, to facilitate ends that are pleasing to God.

The Market Economy and Government

Attempting to make the market economy function in a manner pleasing to God has proven to be arduous. None of us is perfect. As Adam and Eve so aptly demonstrated, our free choice includes the freedom to make mistakes, to do the wrong thing, and, most regretfully, to harm other people. We have the maddening capacity to behave as sinners as well as saints. Our societies need law and order to prevent them from lapsing into a chaos marked by egregious abuses of our individual freedom to choose.

Governments answer this need. We establish governments with the power to tax and raise armies, and these governments pass laws to try to control harmful behavior. Like the market, these governments, and the laws they enact, derive their power from our ability to choose among different alternatives. We choose to delegate our power to manage contemporary affairs to our governments, hoping and praying that we can discern God’s will as we do so.

But the establishment of government and law does not absolve us as individuals from the responsibility to seek to choose according to God’s will. Jesus makes this clear in the statement “render unto Caesar what is Caesar’s, and render unto God what is God’s” (Matt. 22:21). Rendering to God what belongs to God and to Caesar what belongs to Caesar implies that while a governmental authority should be separate, it must never subsume individuals to the point that they lose their identity outside of their national citizenship. Even though the government has the power to tax, raise armies, and pass laws, we individually still remain accountable to God for our decisions.

As individuals created in the image of God, we are not so much accountable for the action of the society in which we live, as we are for our own behavior in that society. We must, however, continue to strive to make our society work to achieve God’s will. That includes listening to the opinions and feelings of others in the community as we make our decisions. We must still think critically, and continue to choose wisely, in the full awareness that morality issues not from social platform but from individual choice.

The Role of the Clergy

Given the moral neutrality of the market economy and the importance of individual moral choice, the church and our clergy then serve an indispensable role. They must help us understand the moral potential of the market economy and serve as a beacon to guide us as individuals on how best to implement and maintain a moral foundation for the market economy. The church should not work against markets, but instead should provide the moral guidance we need to achieve the necessary balance between suffocating regulation and unbridled chaos. In this the church can help people use their God-given free choice responsibly in a market that can promote good or evil depending on our individual choices.

All of us work and participate, in one way or another, in the market economy. As Christians, we need the church’s moral guidance, not its condemnation of capitalism. As I mentioned earlier, the speaker believed that the driving force for executives in the market economy is profit, and that profit is evil and therefore is in conflict with practicing the Christian faith. Epitomizing this sentiment, the speaker showed an excerpt from the movie Wall Street that includes the lines: “Greed is good. Greed works. Greed will save the company and the U.S.A.” This may appeal to Hollywood as a good story line, but the assessment is inaccurate and misguided.

If greed were the driving force in a market economy, then indeed one could claim market economies are sinful. Greed implies avarice, covetousness, and even outright stealing, and we are commanded not to covet and not to steal. But market economies are not driven by greed, avarice, or covetousness.

Understanding Business and Profit

The driving force of the market economy is the consumer, you and me. Finding new ways to serve consumers requires imagination, creativity, innovation, and, above all, a willingness to take risk. It requires extensive market research to determine customer opinions and present practices. When a person organizes a company to create, manufacture, and market a product or service, he or she does it first and foremost based on a belief that a market need exists and that the new product or service can satisfy this need. The driving force for a supplier within the market economy is not greed for maximum profit, but the genuine desire to provide a benefit to others, for which they in turn will be willing to pay the cost with their own treasure. In fact, if the corporation is to stay in business, the consumer must be willing to pay more than the cost of the product or service. For the corporation to survive and serve more consumers it must make a profit.

Within any individual business, large or small, the underlying driving force is the fear of what will happen to the management, the employees, or the stockholders if the business does not make a profit. Within every business, profit functions like the blood in a human being—the human dies if the blood stream stops flowing, but pumping blood is hardly the reason a human being exists. However, just as a human will not live long without the blood supply, a business will not survive for long without a profit.

The real boss in any company, the ultimate source of its profit, is the customer, not the president, board of directors, nor the shareholders. Boards can decide on management’s compensation formulas, investors can contribute capital for new buildings, and banks can lend money for new machinery, but it is the ongoing revenues from customers—who choose and pay for the company’s product—that pays the company’s operating expenses, including the salaries and wages of each employee. Profit allows the company to pay the cost of its capital by paying interest on borrowed money and dividends to its investors. Profit is what attracts new investors to provide new capital to finance the company’s growth. Profit is also what attracts competitors who wish to gain some of that profit for themselves, and perhaps provide even better services or products. Companies must be profitable to pay for salary increases, expanded employee benefits, more customer services, engineering for product improvement, research and development for future products, better environmental controls, and for community development projects. Profit is essential if companies are to act as responsible citizens in their communities.

Any business not making a profit is considered a “troubled” or failing business, and our market economy has plenty of them. Failing businesses must either change what they do or they will go out of business. Profit, or the lack of profit, acts as a constant cleansing process that keeps our market economy healthy, growing, adaptive, and innovative. In a failing business it is indeed necessary for everyone, from president to janitor, to stop the losses and to focus intensely on becoming profitable again. Once a failing business recovers sufficiently to generate regular profits, the focus can then shift to becoming the best in its chosen field through creative marketing, advanced product technology, high distribution efficiency, or low production costs. These long-term goals require a vision and plan for the future. Establishing a long-term viable business requires much more than simply a vision to maximize profit. No business endures for long if employees believe they only work to make a profit for the owners.

While it is true that a chief executive officer’s immediate goals include achieving profit and efficiency for the company, examining the underlying reasons for these goals demonstrates they are not inconsistent with Judeo-Christian morality. To achieve the immediate goals of profit and efficiency a chief executive officer must strive to maximize the company’s service to its customers. If a company fails to provide this service, it will lose those customers to competition that serves them better. No matter how charismatic, authoritarian, tax-savvy, or charitable a chief executive officer is, he or she cannot generate a profit year after year simply by focusing on profit, essential as this may be. Companies, as we observed earlier, are made up of many individuals making many individual decisions.

In serving its customers, a company is only as good as its employees. Confucius observed that the most important job of the wise ruler is to pick good people. Today we would add that not only must the wise ruler pick good people, the wise ruler must also empower good people to make their own decisions, granting them the freedom to make mistakes within the area of their assigned responsibilities. Modern business is indeed beginning to learn what God knew when he created us: Things work better in the long run when people are free to choose, free to make their own decisions, than when they are coerced into doing something that they do not wish to do and do not understand. In today’s modern corporations, “best management practices” emphasize decentralized decision making and empowering workers. The key to success is defining with clarity when the right to make a mistake should be passed up to a higher authority, such as the chief executive officer, the board of directors, or the shareholders.

Allowing Market Forces to Work

We still have a long way to go before the moral potential of the market economy becomes thoroughly implemented, but most business people are not bad. Even when they are, they command no monopoly on malfeasance. Bad actors can be found in the professions of law, medicine, sports, and even the clergy, where embezzlers and pedophiles have been known to abuse our trust. But market forces do work, and corrective action is taken when these abuses are identified. Market systems have built-in, self-correcting tendencies, but one must have considerable patience, sometimes, to allow these self-correcting tendencies to work their way through the system.

Transparency is often the most effective deterrent for bad behavior in business. As a former president of Ford Motor Company, and later Dean of the Stanford Business School, once observed, “Business doesn’t need more lawyers to write detailed codes of conduct. All I have to do, to know what is right and what is wrong, is to ask myself, how would this look on TV?” While there is certainly more to morality than avoiding a dastardly portrayal on the evening news, solutions that stress openness and transparency are definitely preferable to passing more laws that require administrators, inspectors, enforcers, courts, and lawyers. An overabundance of laws tends to empower the elite in the society and foster corruption.

Certainly, the world has increased in complexity in the past 2,000 years—more people, instant communications, huge advances in scientific knowledge, but, above all, a plethora of new kinds of institutions to allow cooperative endeavors to achieve far more than individuals could accomplish on their own. These corporate endeavors have caused problems, and they will cause more problems. Rather than disparage these organizations and the market systems that produced them, however, the church should stress forgiveness and understanding and endeavor to provide constructive moral guidance. Christian speakers at seminars should not overreact to problems by recasting all business executives in the image of bad actors. We all must direct our view beyond an individual’s sins to search for the systemic incentives that may well have contributed to these sins. Only in understanding the underlying reasons for the actions of bad actors in the marketplace can the church offer meaningful corrective suggestions instead of negative and counter-productive rhetoric.

Greed does still exist in the world. Individuals do covet, cheat, and steal. But we should not blame their acts on the market system that originates from God’s precious gift to us of free choice. Instead, we should look on these “bad apples” as an indicator of a deeper problem. Like the death of the canary in a poisoned mine shaft, the malfeasances of some individuals within our society may actually be signaling a lack of some vital social oxygen in our economic or political system, which all of us must seek God’s guidance to root out and correct.

There are perverse incentives built into the market economy by extraneous forces and there are perverse incentives ushered in by the darkness persistently remaining in the hearts of human beings. We must, with God’s help, choose how to deal with both.