Is Capitalism Fair?

It seems "fairness" has become a buzzword in our political discourse these days -- most notably in the rancorous debate in Washington over spending cuts and tax increases. But what does fairness mean? How do you know it when you see it?

Some cynics view fairness as nothing more than a cloak for self-interest. As the playwright George Bernard Shaw put it, "The golden rule is that there is no golden rule." But the cynics are wrong. Research findings in many different disciplines -- from behavior genetics to the brain sciences, anthropology, evolutionary psychology, behavioral economics, and even animal (primate) behavior -- have established that we do, in fact, have an innate sense of fairness. We regularly display a concern for others' interests as well as our own, and we even show a willingness to punish perceived acts of unfairness. However, our sense of fairness can also be subverted by various cultural, economic and political influences, not to mention the lure of our self-interests. And, of course, there are always the "outliers" -- the Bernie Madoffs -- who seem to be "fairness challenged."

Fairness means, quite simply, taking into account the interests and needs of all the parties, all of the "stakeholders" in a given situation and trying to strike a balance between them. And, whenever there are conflicting interests, "compromise" is the indispensable solvent for achieving a fair outcome. So our sense of fairness is not a formula, or a recipe, or some kind of ethical cookie cutter. It's more like a compass that can help us to navigate our way in a society where we constantly interact with others and have to respond to their concerns.

The term "fairness" is often used with reference to procedural matters - fair dealing - but it has a vitally important substantive side as well; it refers to a "fair share" of the benefits, or the costs, or both. In fact, there are three distinct categories of substantive fairness (equality, equity, and reciprocity) that must be combined and balanced in order to achieve a truly fair society. (They are discussed at length in my book, The Fair Society.)

Our basic, biological survival and reproductive needs are inescapable imperatives. In this respect we are all approximately equal, and our highest priority as a society is to ensure that the basic needs of all of our people are satisfied. Numerous public opinion surveys and formal research studies have shown that the overwhelming majority of Americans are inclined toward generosity with respect to our basic needs. There is no moral justification for the fact that some 50 million Americans (including 17 million children) went hungry at various times during the past year.

Beyond providing for our common needs, the principle of equity (or rewards for merit) is also crucial to achieving fairness, and our capitalist economic system and our democratic government have had a very uneven record in this regard. At times our economy and our politics seem to have become a rigged game, with little regard for merit. There is a saying on Wall Street that "whoever has the gold makes the rules." This certainly seems to have been true with regard to the Wall Street bank bailouts, which were followed by a prompt return to paying out multi-million-dollar bonuses. Over the past 30 years, the income and wealth in our society have become overwhelmingly concentrated among the top 10 percent of the population. We hold the dubious distinction of having the greatest income disparity between the rich and the poor of any advanced industrial society. That strikes many people as unfair.

The final fairness category, one where we also fall far short, is reciprocity. As the great Roman legal scholar Cicero put it: "There is no duty more indispensable than returning a kindness." This means that there must be an approximate balance in the burdens and costs for sustaining our society, especially the tax burden but also in relation to public service. It's only fair to expect contributions from all of us in accordance with our ability to do so. Otherwise, we are "free riders," to use a popular economics term. I'm fond of the Muslim scholar Ibn Khaldun's much-quoted saying "He who takes from society without giving back is a thief."

Achieving a new "social contract" based on these three fairness principles would entail some major policy changes in our society, including (among other things) a full employment program (so that everyone who is willing and able to work would have a meaningful job at a living wage), along with an expansion rather than a contraction of our social safety net, a shift in our tax code toward greater fairness, and a universal public service obligation. This is the price we should willingly pay to live in a fair, humane and stable society.

Is this an impossible dream? Actually, it would enable us to catch up with (and hopefully surpass) those European "welfare capitalist" societies - like Norway, the Netherlands, Denmark, Sweden, and Germany - that have become models for what a fair society can look like. (There is much more on all of this in my book.)

Plato, in his great dialogue about social justice, The Republic, observed that most states seem to be divided in two, one composed of the very rich and the other of the poor, and that these two states are forever "at war with each other." It doesn't need to be this way. It's a matter of choice.