much has been accomplished, yet much remains to be done. The promise of this marvelous system for human cooperation is far from being completely fulfilled. Too much of the world still has not embraced the core principles of free-enterprise capitalism, and as a result, we are collectively far less prosperous and less fulfilled than we could be.
Much of the twentieth century can be seen as an extended intellectual war between two diametrically opposed social and economic philosophies—free-enterprise capitalism (free markets and free people) and communism (dictatorship and governmental economic control). By every objective measure, free-enterprise capitalism has won this battle. The United States was far more economically dynamic and socially evolved than the Soviet Union, its chief communist rival. The same held true for West Germany versus East Germany; South Korea versus North Korea; and Taiwan, Hong Kong, and Singapore versus China. With the fall of the Berlin Wall in 1989, country after country began to turn toward greater political and economic freedom in the 1990s and 2000s, as the dismal economic and societal results of the various socialistic experiments conducted in the twentieth century became better known. As this transition to greater freedom took root, many countries experienced rapid economic growth, and hundreds of millions of poor people were able to escape grinding poverty.
Of course, much of the Western world has benefited from the fruits of free-enterprise capitalism for about two centuries now. The success of free-enterprise capitalism in improving the quality of our lives in countless ways is the most extraordinary but poorly understood story of the past two hundred years. It has enabled humankind to progress at a rate unprecedented in all of history. Consider these facts:
Just 200 years ago, 85 percent of the world’s population lived in extreme poverty (defined as less than $1 a day); that number is now only about 16 percent.1 Free-enterprise capitalism has created prosperity not just for a few, but for billions of people everywhere.
As figure 1-1 shows, average income per capita globally has increased 1,000 percent since 1800.2 It has increased 1,600 percent in developed countries. Japan’s income per capita has increased by 3,500 percent since 1700. Adjusting for affordability and quality improvements, the standard of living of ordinary Americans has increased 10,000 percent since 1800!3 Perhaps most startling, the gross domestic product (GDP) of South Korea has grown 260-fold since 1960, transforming it from one of the poorest countries in the world to one of the richest and most advanced.4
Over tens of thousands of years, the human population grew very slowly and declined frequently as huge epidemics such as the plague and influenza claimed millions of lives. It finally crossed one billion around 1804 and has grown rapidly since to over seven billion, primarily because of progress in sanitation, medicine, and agricultural productivity.5
In the past two hundred years, average life expectancy across the world has increased to sixty-eight years, from its long historical average of thirty years or less.6
In just the past forty years, the percentage of undernourished people in the world has dropped from 26 percent to 13 percent.7 If current trends continue, we should see hunger virtually eliminated in the twenty-first century.
From a world of almost complete illiteracy, we have transformed, in only a couple of hundred years, into one in which 84 percent of adults can now read.8
With the growth of economic freedom, 53 percent of people now live in countries with democratic governments elected by universal suffrage, compared with zero people just 120 years ago, as even democracies denied women or minorities, or both, the right to vote.9
Contrary to popular belief, prosperous countries have a higher level of life satisfaction. The self-determination associated with free markets, along with greater prosperity, leads to greater happiness. The top quartile of economically free countries has a life satisfaction index of 7.5 out of 10, compared with 4.7 for the bottom quartile.10
FIGURE 1-1
World population and gross domestic product (GDP) per capita
Source: Data from Angus Maddison, “Statistics on World Population, GDP and Per Capita GDP, 1–2008 AD,” Groningen Growth & Development Centre Web page, March 2010, www.ggdc.net/MADDISON/oriindex.htm.
Entrepreneurs: The Heroes of Free-Enterprise Capitalism
In her recent book Bourgeoisie Dignity, Deirdre McCloskey, an economist at the University of Illinois in Chicago, argues persuasively that the most important factors in free-enterprise capitalism’s success have been entrepreneurship and innovation, combined with freedom and dignity for businesspeople.11 The inventions that have changed the world—automobiles, telephones, gasoline, the Internet, antibiotics, computers, airplanes—didn’t happen automatically or by government edict; they all required massive amounts of innovation. Human creativity, partly individual but mostly collaborative and cumulative, is at the root of all economic progress.
Entrepreneurs are the true heroes in a free-enterprise economy, driving progress in business, society, and the world. They solve problems by creatively envisioning different ways the world could and should be. With their imagination, creativity, passion, and energy, they are the greatest creators of widespread change in the world. They are able to see new possibilities and enrich the lives of others by creating things that never existed before.
Educator Candace Allen, wife of economics Nobel laureate Vernon Smith, writes movingly about the need for entrepreneurial heroes in society and the great impact they have on our lives: “Ultimately, the hero is the representative of the new—the founder of a new age, a new religion, a new city, the founder of a new way of life or a new way of protecting the village against harm; the founder of processes or products that make people in their communities and the world better off. What I will contend here is that in our modern world, the wealth creators—the entrepreneurs—actually travel the heroic path and are every bit as bold and daring as the heroes who fought dragons or overcame evil.”12
Why Capitalism Is Under Attack
Despite enabling widespread prosperity, free-enterprise capitalism has earned little respect from intellectuals and almost no affection from the masses. Why is it so disliked by so many people? Does it need to change? Do we need to think about it differently?
Rather than being seen for what they really are—the heroes of the story—capitalism and business are all too frequently vilified as the bad guys and blamed for virtually everything our postmodern critics dislike about the world. Capitalism is portrayed as exploiting workers, cheating consumers, causing inequality by benefiting the rich but not the poor, homogenizing society, fragmenting communities, and destroying the environment. Entrepreneurs and other businesspeople are accused of being motivated primarily by selfishness and greed. Meanwhile, the defenders of capitalism frequently speak in a jargon that not only fails to inspire people, but often reinforces the ethical critique that capitalists only care about money and profits and that businesses can only redeem themselves through “good works.” This is a fundamentally misguided view.
We believe that capitalism has long been under attack for several reasons:
1 Businesspeople have allowed the ethical basis of free-enterprise capitalism to be hijacked intellectually by economists and critics who have foisted on it a narrow, self-serving, and inaccurate identity devoid of its inherent ethical justification. Capitalism needs both a new narrative and a new ethical foundation, one that accurately reflects its intrinsic goodness and virtue.
2 Too many businesses have operated
