makeshiftmind

I had a conversation not too long ago that involved capitalism and the nature of business. We were discussing a company that was selling a product that was implicitly misrepresented to the company’s customers. The company wasn’t making false claims about the product per se, but they were including the product in a line-up of other products that had more features, and were thus implying that the product in question was semi-equivalent to its superiors, when in fact it was vastly different. The gentleman with whom I was speaking saw no problem with this type of sales, and in fact justified it by saying that capitalism sometimes included preying on the weak and ignorant in order to make money.

I disagree with his position. The sales tactic employed here is based, in principle, on fraud, and has nothing to do with making honest money. Technically, a company can “get away” with these tactics because the company is not actively engaged in deception — the deception is implicit — and the company is not withholding any information the customer could get by asking. But does capitalism require, or even support, this kind of economic behavior?

My answer: emphatically, no.

Capitalism — real capitalism — punishes fraudulent behavior in two ways. If the fraud is direct, if the company actively misrepresents itself, or does not deliver goods and services for payments received, the government can, and should, intervene because direct fraud is clearly theft. Every reasonable person can agree on this point.

If fraud is indirect, however, the line of demarcation is much more vague. “Clever” companies can justify their shady sales techniques by hiding behind the ignorance of customers, claiming that their advertisements were true, insofar as they represented the product, or that the “fine print” specified all the terms and conditions of the sale, regardless of whether the customer was told to read page 34 of the “end user license agreement” or not.

In these situations, the government has no clear role in resolving disputes. Fortunately, capitalism itself provides the means of resolution: voluntary association. People are not powerless when they have been wronged by immoral businessmen; they can form associations that can leverage public knowledge and buying power to expose fraudulent businesses. Organizations like the Better Business Bureau offer mediation services for individuals or companies who believe they are victims of shady business practices. Even if the situation can not be mediated (for whatever reason), a public record of the complaint is filed and is accessible to anyone who wants to know about the integrity of a company. The Bureau deems a company unsatisfactory when:

“…the company has failed to resolve or respond to complaints, repeatedly failed to respond or resolve issues in a timely manner, failed to resolve the underlying issues for a pattern of complaints, failed to honor their commitment to mediate or arbitrate disputes or honor mediated agreements or arbitrated decisions, failed to substantiate, modify or discontinue false advertising claims that are challenged by the BBB, or failed to discontinue unauthorized use of the BBB name and logo, a Federally protected trademark.”

Public awareness of corrupt business practices damages a company’s reputation and patronage, an indirect punitive measure that a capitalist economy provides.

At the end of my discussion, it occurred to me that most socialists / communists / collectivists attack the predatory attitude portrayed here as being the core of capitalism. While that is tantamount to a straw man argument, it is nevertheless a powerfully persuasive one to people who understand that preying on the week (i.e., theft) is immoral, and who are looking for a better alternative.

Real capitalism is built on the twin pillars of voluntary association and productive ability. No one can be coerced to give up the fruit of their labor. They can do so voluntarily, in exchange for some greater value, if they wish. Greater value can only be produced by those who have the ability and inclination to produce something that is in demand. Both the producer and consumer share roles in their transactions: the “producer” generates a product, but at the same time, “consumes” the consumer’s money; the consumer “consumes” the producer’s product, but at the same time “produces” money that the producer desires. Both parties can misrepresent the “value” they bring to the table, but in a capitalist system, measures can be taken to correct wrongs if needed.