How the invisible hand seems to segregate between race and gender, and what we can do.
In 2015, most world economic systems use some type of capitalism. Based on principles of laissez-faire free market and corporate competition to drive down prices for the everyday citizen, capitalism is seen as a fundamental building block for innovation, primarily because of the way that a capitalist system fosters the incentive to innovate.
The invisible hand is the principle that if everyone does selfishly what would be best for themselves, the entire group benefits as a result, because the competition for money will lead companies to think of innovative ways to make their products cheaper and better.
In a capitalist economy, the role of the government is to provide a fair platform for individuals to form corporations and compete in a fair way, instituting a common fiscal backbone, dispute settlement process, and safeguards from unethical behavior. Thus, the government tends to walk a line between a level of regulation that maintains a fair platform that continues to incentivize innovation and over-regulation to a point that makes innovation overly difficult.
Additionally, having money is a surrogate for power. If people have the ability to choose which one of two competing companies they would like to be a customer of, the free market of people’s purchases will determine which company has more power. Thus, the people that create value in a capitalist economy and are able to capture the value into money are the ones that have more power to make purchases in the way that they want.
In the private sector, having money is what moves the needle. The theory of the efficient market implies that a perfect market will self regulate in a way that naturally puts companies, products, and employees at the right value and price. But this means that people with money have power.
A Nation for the People
Although the United States is a deeply capitalist nation, it is also a democracy. Inherently, there are tensions between the values of democracy and the values of capitalism. In a democratic system, the people of the state are involved in making decisions about its affairs, ideally independent of how much or little money they have. Democracy functions on a majority of voices and not a majority of money.
If all citizens in the democratic state have unalienable rights, equality in the eyes of the law is theoretically a core value independent from your position in the economic pecking order. And although it is possible to have an equitable democratic system coexist alongside of a capitalist economic structure, there are a lot of problems that arise at points where the two systems mix.
Lobbying is one of these areas. By definition, “lobbying is the practice of trying to persuade legislators to propose, pass, or defeat legislation or to change existing laws. A lobbyist may work for a group, organization, or industry, and presents information on legislative proposals to support his or her clients’ interests.”
While trying to persuade legislators to pass legislations in certain ways seems to be a reasonable practice, the problem is the money that is spent lobbying. Oftentimes, the organizations with the deepest pockets are the ones that are able to bankroll extravagant lobbying strategies, putting them at an advantage compared with the people and organizations that are not able to fund lobbying to the same extent.
Another example can be seen in the way that presidential and congressional candidates run for office. Not all candidates have an equal chance of being elected. In our modern age, the success of a presidential candidate is heavily influenced by their ability to raise millions of dollars toward their campaign, and how they are able to put themselves in front of people that they want to vote for them.
Can We Have Our Cake and Eat it Too?
One of the core effects of capitalism is that there will always be an inequality of income between the wealthiest and the poorest. Because capitalism rewards innovation and entrepreneurialism, the incentive to compete to get more money than another person or company creates inequality by default. Thus, economic inequality is a natural characteristic of capitalism.
One thing to note is that although economic inequality is a natural characteristic, if the level of inequality is too great, it is often indicative of monopolies that can end up backfiring on capitalism’s core principles. If one company manufactures all the automobiles in the United States, they have the freedom to price their automobiles at whatever price they want, ruining the incentive to continually improve their product. Monopolies will hinder free trade, eliminate competition in a way that eliminates the incentive to make a better and cheaper product.
And although capitalism likes to present itself as a meritocracy and efficient market in which the more innovative and better products earn more money, there are a couple deep effects of capitalism that should be noted.
First, even though capitalism may be how an economy functions at a macro scale, micro interactions between individuals are hardly capitalist. In other words, a mother won’t charge her 5-year-old for every meal that she provides to him, and more wealthy parents will share their wealth with their families regardless of merit. This creates circles of individuals whose economic power was not obtained through creating value, but simply because of the relationship they had with someone else. For people within a system as a whole, the fact that some people happen to be born with certain privileges seems unfair.
Second, economic inequality in the United States is drawn along lines of race and gender. If a capitalist system is truly a fair meritocracy, economic inequality should happen independent of external factors of race and gender. But unfortunately, that is not the case. The fact that the average white male makes much more than other groups shows that there are inherent biases within the system that advantage certain groups over others.
Both of these caveats in the capitalist system are very serious ones, but also very difficult to fully identify. Although a certain level of inequality is a characteristic of any capitalist system, it can be impossible to identify whether the reason for the economic inequality is biased in any way. A capitalist society that is making strides to become equitable should not conflate the problems of social inequality with the natural effect of economic inequality.
