Perhaps the stickiest objection to capitalism is that it produces – maybe for some, even thrives – on inequality. The rich get richer and the poor stay poor.
A recent comment in The Economist complained that “The poor among us have stopped catching up.” The system has failed them: extreme poverty has barely fallen since 2015. The magazine, however, does not blame capitalism for this failure of economic growth. Rather, the magazine puts the blame on governments for shifting from markets to industrial policy and trade restrictions. It seems constricting markets puts the brakes on wealth creation – just as Adam Smith pointed out 249 years ago. Indices of economic freedom have been largely flat in most of Africa and South America.
In addition, other data has surfaced that points the finger away from capitalism to culture as the incubator of economic inequality. It seems that individual behaviors contribute to individual outcomes in life. As Smith assumed and German sociologist Max Weber made explicit, values drive behaviors and behaviors bring about outcomes. Social and human capital accounts are the foundations for the creation of financial capital.
A simple example is the entrepreneur. Starting a new business requires finance, but what are the conditions which permit obtaining monetary capital? Usually, it is the intangibles – the reputation of the entrepreneur, the practicality of his or her business model, trust that consumers will buy the new product or service with ready money, availability of labor skill and quality of worker diligence, etc.
In a recent article, Professor Roland Fryer of Harvard argued that choosing your identity or living with an identity provided to you by family, community and history, determines much of what your life will be like. “How you view your role in the world will affect your choices.” He follows the innovative thinking of George Akerlof, a Nobel laureate, on the complexity of rational economic decision-making once identity perceptions and priorities are taken into account. Individuals intend to gain from both material outcomes and actions that affirm their ego-identities. “A corporate job might offer financial stability, but if it conflicts with an individual’s identity as an environmentalist or feminist, the mismatch can lead to dissatisfaction and underperformance. Lab experiments have shown that people may opt for lower-paying jobs if it means greater congruence with their social group or might choose consumer goods that signal affiliation to a particular identity, despite higher costs.
Then, a recent study published by the National Bureau of Economic Research in the U.S. concluded that the more you work, the more you earn when the major determinant of total lifetime working hours is individual choice – values, again, driving behaviors and life outcomes.
Those who work more, earn more because they spend more time acquiring skills.
Thirdly, religion adds weight to the scales of human capital. Pious students have higher grades, better attendance records and complete more years of college (The Economist, August 17, 2024, p. 19). Religious communities tend to be learning communities. They read together, engage in dialogue together and build all kinds of social skills. I recall my more conservative Jewish friends in high school and college with all the hours they put into reading and debating the Talmud.
Within nuclear families, the more religious siblings perform better in school.
Doing better in school also happens with faithful atheists.