Skip to content

Capitalism in the Dock

Debate Continues Over Effects of the Market

NEW YORK, FEB. 21, 2006 (Zenit) - After the collapse of communism and the adoption of free-market policies by just about all countries and political parties, market capitalism should be triumphant. But recent books highlight the shortcomings of the free markets.

In "The Battle for the Soul of Capitalism" (Yale University Press), John Bogle analyzes what he considers to be crucial failings in the financial markets. Bogle, former chief executive of the Vanguard mutual fund group, wants the system to be run in the interests of the shareholders and owners, rather than the managers.

Bogle argues that the last couple of decades have seen serious erosion in the conduct and values of business leaders, investment bankers and money managers. A staunch defender of capitalism and free markets, Bogle nevertheless laments the excessive attention given to stock market prices, instead of the intrinsic values of corporations.

Drawing on his own experience in the mutual fund sector, he looks at how this sector has contributed to current problems. These funds not only siphon off very large sums of money in the form of fees and their share of profits on stock market gains. They also serve to isolate managers from any form of control by stockholders, Bogle contends. Institutional investors in general, such as retirement funds and mutual funds, now own two-thirds of all U.S. equities. In fact, the largest 100 funds account for no less than 52% of equities.

Another factor adversely affecting financial markets, Bogle notes, is the concentration on short-term gains. A few decades ago mutual funds saw around 15% of their stocks turn over in a year. By the late 1990s this had risen to 100%, or more, as fund managers chased quick returns in the booming market. This trend from investment to short-term speculation in stocks means that funds are less likely to be interested in pressuring companies to improve their ethics or management.

As well, corporate directors, auditors, and legislators have all too often failed to ensure sufficient oversight of how companies are being run, leading to the scandals of recent years.

Values needed

"Capitalism requires a structure and value system that people believe in and can depend on," Bogle argues. This includes trust in the word of others, and an assurance that the system will function with equity. And for a long time this worked; capitalism delivered remarkable economic benefits.

By the late 20th century the system changed and turned into a form of "manager's capitalism." In extreme cases, it saw companies being run to benefit the managers, not the owners or shareholders. Proof of that is the soaring level of remuneration given to company executives in recent years, a trend Bogle strongly criticizes.

Shareholders have benefited too, Bogle acknowledges. Even counting the "bubble burst" in 2000, the U.S. stock market rose an average annual rate of 13% from 1982 to early 2005. (He adds, however, that a large proportion of shares that were sold before the bubble burst were those held by corporate executives.)

Bogle proposes a variety of reforms to overcome the deficiencies he outlines: performance-based compensation for executives; better corporate governance; improving accounting standards; a return to a long-term focus; and a clearer separation of ownership from management.

Another book that has drawn attention to how financial markets are causing serious problems is "Capitalism's Achilles Heel" (John Wiley & Sons). Written by Raymond Baker, ex-businessman and current guest scholar at the Washington, D.C.-based Brookings Institution, the book draws attention to problems such as bribery, money laundering, tax evasion and income inequality.

Baker is, he stresses, in favor of capitalism. But he worries that too many people today cater to its weaknesses rather than build on its strengths. He is particularly concerned that the defects he outlines are contributing to the enormous gap between rich and poor, which, in turn, is undermining the future prospects for prosperity.

Ethical market

The market also has many positive aspects. One of its defenders is John Meadowcroft, deputy director of the London-based Institute of Economic Affairs and author of the book "The Ethics of the Market" (Palgrave).

He argues that the market is an important school for virtue, and that participation in a market economy strengthens rather than weakens institutions such as the family. The market does not impose a specific set of values. The market mechanisms as such, Meadowcroft observes, can be used just as easily by selfless altruists as by selfish hedonists.

The market system does allow individuals to make choices that are morally questionable, he notes. Yet he argues that it would be a mistake to try to force morality on people. There is good reason to believe, Meadowcroft argues, that where the role of the state has expanded it has crowded out the institutions of civil society and diminished their possibility to contribute to the moral capital of society.

The ethical justification for the market lies in its being the most efficacious mechanism for helping people of whom we have no direct personal knowledge. As well, it gives individuals the greatest possible scope for determining their own destiny.

In the marketplace, people pursue their own ends and the market is able to regulate economic activity and ensure the greatest efficiency through a freely operating price system. This is not just an individualistic system, Meadowcroft argues. The market is, rather, a social process in which individuals learn that their own ends can be achieved only if they are reconciled in some way with those of other people.

By requiring people to continually review their ends in the light of information about others, communicated through price signals, the market coordinates a myriad of competing ends and values into coordinated economic activity.

In this sense, it is not correct to think of the market operating, as Adam Smith described it, through self-love. It is not selfishness that drives the market. Rather, individuals are motivated to respond to the price signals generated. Economic coordination depends on people being alert to these signals, whether the ends they seek are selfish or altruistic.

And what about the accusation that the market system leads to an unequal distribution of wealth? Meadowcroft replies that this is simply the result of the value of economic contributions as determined by the perceptions of consumers and producers. Inequality is a part of how the market works. Moreover, it is part of a system that brings with it benefits for all members of society. He does, however, contend that the state should guarantee a minimum income to ensure that no one be left in absolute poverty.

Wider view

The Compendium of the Social Doctrine of the Church has an ample section dedicated to the economy. It recognizes (in No. 347, for example) the positive role played by markets, which allow economic potential to be developed efficiently.

Yet, the Compendium urges that people also need to remember aspects such as ensuring justice and solidarity. They must avoid the error of seeing the accumulation of material goods as the only end of their activity.

Moreover, economic activity is only one facet of human activity and it needs to be placed within the wider context of the person. Keeping things within this wider perspective is, in fact, a key point raised by the Compendium. That's a hard sell for some, but one that would go a long way to fixing deficiencies in the way the market works.


Catholic Online CA, US
Catholic Online - Publisher, 661 869-1000



Capitalism, Market, Money

More Catholic PRWire

Showing 1 - 50 of 4,718

A Recession Antidote
Randy Hain

Monaco & The Vatican: Monaco's Grace Kelly Exhibit to Rome--A Review of Monegasque-Holy See Diplomatic History
Dna. Maria St. Catherine Sharpe, t.o.s.m., T.O.SS.T.

The Why of Jesus' Death: A Pauline Perspective
Jerom Paul

A Royal Betrayal: Catholic Monaco Liberalizes Abortion
Dna. Maria St.Catherine De Grace Sharpe, t.o.s.m., T.O.SS.T.

Embrace every moment as sacred time
Mary Regina Morrell

My Dad
JoMarie Grinkiewicz

Letting go is simple wisdom with divine potential
Mary Regina Morrell

Father Lombardi's Address on Catholic Media
Catholic Online

Pope's Words to Pontifical Latin American College
Catholic Online

Prelate: Genetics Needs a Conscience
Catholic Online

State Aid for Catholic Schools: Help or Hindrance?
Catholic Online

Scorsese Planning Movie on Japanese Martyrs
Catholic Online

2 Nuns Kidnapped in Kenya Set Free
Catholic Online

Holy See-Israel Negotiation Moves Forward
Catholic Online

Franchising to Evangelize
Catholic Online

Catholics Decry Anti-Christianity in Israel
Catholic Online

Pope and Gordon Brown Meet About Development Aid
Catholic Online

Pontiff Backs Latin America's Continental Mission
Catholic Online

Cardinal Warns Against Anti-Catholic Education
Catholic Online

Full Circle
Robert Gieb

Three words to a deeper faith
Paul Sposite

Relections for Lent 2009
chris anthony

Wisdom lies beyond the surface of life
Mary Regina Morrell

World Food Program Director on Lent
Catholic Online

Moral Clarity

Pope's Lenten Message for 2009
Catholic Online

A Prayer for Monaco: Remembering the Faith Legacy of Prince Rainier III & Princess Grace and Contemplating the Moral Challenges of Prince Albert II
Dna. Maria St. Catherine Sharpe

Keeping a Lid on Permissiveness
Sally Connolly

Glimpse of Me
Sarah Reinhard

The 3 stages of life
Michele Szekely

Sex and the Married Woman
Cheryl Dickow

A Catholic Woman Returns to the Church
Cheryl Dickow

Modernity & Morality
Dan Shea

Just a Minute
Sarah Reinhard

Catholic identity ... triumphant reemergence!
Hugh McNichol

Edging God Out
Paul Sposite

Burying a St. Joseph Statue
Cheryl Dickow

George Bush Speaks on Papal Visit
Catholic Online

Sometimes moving forward means moving the canoe
Mary Regina Morrell

Action Changes Things: Teaching our Kids about Community Service
Lisa Hendey

Easter... A Way of Life
Paul Spoisite

Papal initiative...peace and harmony!
Hugh McNichol

Proclaim the mysteries of the Resurrection!
Hugh McNichol

Jerusalem Patriarch's Easter Message
Catholic Online

Good Friday Sermon of Father Cantalamessa
Catholic Online

Papal Address at the End of the Way of the Cross
Catholic Online

Cardinal Zen's Meditations for Via Crucis
Catholic Online

Interview With Vatican Aide on Jewish-Catholic Relations
Catholic Online

Pope Benedict XVI On the Easter Triduum
Catholic Online

Holy Saturday...anticipation!
Hugh McNichol

Never Miss any Updates!

Stay up to date with the latest news, information, and special offers.

Learn about Catholic world

Catholic Online
Inform - Inspire - Ignite

Catholic Online Saints
Your saints explained

Catholic Online Prayers
Prayers for every need

Catholic Online Bible
Complete bible online

Catholic Online News
Your news Catholic eye

Daily Reading
Today's bible reading

Lent / Easter
Death & resurrection of Jesus

Advent / Christmas
Birth of Jesus

Rest of Catholic Online
All Catholic world we offer

Products and services we offer

Catholic Online Shopping
Catholic medals, gifts & books

The California Network
Inspiring streaming service

Advertise on Catholic Online
Your ads on

Catholic Online Email
Email with Catholic feel

Catholic Online Singles
Safe, secure Catholic dating

The California Studios
World-class post production service

Learn the Catholic way

Catholic Online School
Free Catholic education for all

Student Classes
K-12 & Adult Education Classes

School Teachers
Teacher lesson plans & resources

Support Free Education
Tax deductible support Free education

Connect with us online

Catholic Online on Facebook
Catholic social network

Catholic Online on Twitter
Catholic Tweets

Catholic Online on YouTube
Enjoy our videos

Catholic Online on Instagram
Shared Catholic moments

Catholic Online on Pinterest
Catholic ideas style inspiration

Catholic Online Logo

Copyright 2018 Catholic Online. All materials contained on this site, whether written, audible or visual are the exclusive property of Catholic Online and are protected under U.S. and International copyright laws, © Copyright 2018 Catholic Online. Any unauthorized use, without prior written consent of Catholic Online is strictly forbidden and prohibited.