I recently taught a short course introducing business ethics and rational egoism to Executive MBA students. One student observed that it would be easier to apply egoist principles in free markets where acting on such principles, for example, rationality, productiveness, and justice, would be rewarded and profit-making valued. But, the student asked, how does one apply rational egoism in a mixed economy, the prevailing welfare state system?
The student’s question was apt: the welfare state system makes it challenging for business to pursue its (owners’) self-interest—long-term profit maximization—because the rational egoist moral principles are at odds with the dominant moral code on which the welfare state is founded: altruism. It is a code that guides putting others’ interests always ahead of one’s own. This contrasts with the free-market system—capitalism—that is based on in rational egoism. This code advocates the pursuit of self-interest that allows only voluntary and mutually beneficial interactions and renounces the initiation of physical coercion against others.
In a welfare state, many investors, customers, employees, and the government expect business to act altruistically at least some of the time. The business is expected to sacrifice profits for the causes that these stakeholders favor, such as fighting climate change, reducing income inequality, and for various government programs that support them. In contrast, in capitalism, business is expected to focus on creating material values on which people’s lives depend and on trading these values for profit.
The social pressures to conform to others’ altruistic expectations can be significant in a welfare state system and can lead to business appeasing them. As an example, in 2019, the Roundtable of CEOs of 200 major corporations re-defined the purpose of the corporation from creating wealth for its shareholders to serving all its stakeholders equally, including “communities.”
However, if business wants to perform its proper—necessary—role as the creator of material values, such appeasement will not do. It must pursue its long-term self-interest, guided by the rational egoist principles. For that, business must claim the moral high ground. This requires recognizing that business is a tremendous force for good in society. Businesses produce the goods and services that not only make people’s lives possible, but make them better: from food to medicine to energy and beyond. Businesses do this by trading freely with their employees, customers, and suppliers, without violating anyone’s rights.
Understanding that business is a moral endeavor which enhances human life gives businesspeople the courage to defend their companies’ profit-maximization against demands for altruistic sacrifice for the sake of social and environmental goals. A good recent example of moral clarity and courage is Adam Anderson, CEO of Innovex Downhole Solutions in Texas, who wrote an open letter defending his company and industry to North Face. The latter had refused an order of 400 jackets with Innovex logo. North Face did not want to sell branded products to companies in the oil and gas industry because of their CO2 emissions (despite the fact that North Face’s products are derived from oi).
In a welfare state, it may not be always possible for business to pursue self-interest by applying the rational egoist principles, or to benefit from doing so. In such a system, the government controls the economy and business to varying degrees. Governments can prevent the creation of material values altogether, for example, by banning the production of fossil fuels, construction of oil pipelines, or operations of new businesses that disrupt existing industries (such as ride-sharing services Uber and Lyft). In addition, welfare state governments use cronyism to grant favors (exclusive contracts, tax breaks, coercive monopolies, etc.) to some businesses, thus disadvantaging others. Governments also curtail companies’ profits through regulations and welfare programs.
Therefore, business claiming the moral high ground is not enough for it to be able to pursue rational self-interest. It must demand also freedom to operate: being left alone by the government. But once the morality of business has been asserted, this is easier to do. Because the mixed economy welfare state is unstable, always being pulled to the opposite directions of its main elements—government control and freedom, it is possible to help move it to either direction.
While the welfare state cannot be transformed into a free-market system overnight, businesspeople can help by speaking up (in forums open to them) when restrictions on freedom of business are being proposed by government and other groups. This way, business can move the needle towards more freedom, and therefore, towards more value creation, more prosperity, and more human wellbeing.