Before Adam Smith, the world believed that the wealth of a nation was limited by its resources. Wealth of Nations fundamentally altered the way people thought about the economy and relations between the state, society and the individual. It proclaimed that a nation’s wealth can be increased without any limit based on three simple tenets: pursuit of self-interest, division of labour and free trade. Underlying all three is the use of capital which is nothing but surplus profits from any economic activity that needs to be recycled back into it to increase its scale to generate more profits, and so on in an increasing spiral, creating limitless wealth for a nation.

The logic of limitless collective wealth thus lies in the basic human instinct for furthering self-interest in the form of profit ~ call it greed if you would ~ but this greed is the primary driver of all economic activities. Higher greed begets higher profits and greater wealth for everyone. Capital is the ebb and flow of wealth and the yearning for more profit is not a vice but a benevolent force for society. The “invisible hand” of a free market in which competition is free and fair is capable of solving most problems in a capitalist society.

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The downsides of capitalism are too well known today to allow the market a free reign. The market does not provide protection against exploitation, it has no ethics or soul. The prospect of endless profit to satisfy capitalist greed has killed millions with cold indifference across the world. But capitalism works and has survived many crises, emerging stronger from each with remarkable resilience. After the collapse of the Soviet Union, Francis Fukuyama triumphantly proclaimed that with the dissolution of the Soviet Union, humanity has reached the end of history in “the universalization of Western liberal democracy as the final form of human government.” Unfortunately, that utopia had turned into a cannibalizing dystopia of unfettered greed and spiraling inequality plunging the world repeatedly into crisis after crises.

After the Great Depression of the 1930s highlighted the failure of laissez faire capitalism, welfarism, guided by Keynesian ideas, emerged as a major instrument of state policy and the welfare state became the accepted norm everywhere. Even though Keynes strongly emphasised social democratic principles of regulating the market through macroeconomic means, he accepted the capitalist market as the only reliable agency for generating wealth.

Following his ideas, the West European nations experienced prolonged periods of economic growth between 1945 and 1970, leading to continuous improvements in people’s living standards, and institutionalised ‘a cradle to grave’ welfare system for citizens to be sustained by taxes. However, during the 1970s, the situation changed radically due to various factors. The rich OECD countries started experiencing negative growth, high unemployment and stagflation, and Keynesian prescriptions of cutting taxes and boosting government spending were no longer working. As austerity measures and privatisation became the buzzwords for neoliberal policies, a morally bankrupt capitalism was left in a mess of declining growth, stagflation, shoddy nationalisation and ascendance of unscrupulous global financial intermediaries. By the 1980s, most countries were embracing globalisation by shifting the focus from unsustainable state welfarism to deregulation, accompanied by disruptive economic reforms. As this new philosophy, the Neue Mitte (New Middle), restrained the Government’s role to only a facilitator rather than an actor in economic activities, capitalism got further entrenched, piggybacking on technological revolution and internationalisation of the markets while relinquishing control of production back to the private sector by the progressive withdrawal of the state. But the integration of global financial markets driven by unending greed would meet its nemesis in the economic meltdown of 2007-09, again pointing to the inherent flaw of capitalism sans ethics.

Capitalism thrives on profit without responsibility, the sole purpose of a firm being to make profits, as Milton Friedman famously said. In The Future of Capitalism: Facing the New Anxieties, the British economist Paul Collier argued for a balance between freedom, profit and responsibility, and the replacement of ‘economic man’ by ‘social man’ for restoring the core values of a just society. “Capitalism needs to be managed, not defeated”, he said, by integrating it with an ‘ethical state’, ‘ethical firm’, ‘ethical family’ in an ‘ethical world’. The ‘bottomline ~ profit ~ being the sole focus of companies, they have neglected their duties towards society and even their employees. This is what has earned universal contempt for capitalism as a synonym for greed, selfishness and corruption. Perhaps it is about time companies learn that their long-term interests lie in turning their focus away from the ‘bottom-line’.

The corrosive force of the market has progressively undermined the family, the firm and the state ~ “the organising structures of collective life” ~ which have lost their moral compass. Collier does not believe that the State should “wither away’ as stateless societies tend to be disorganised, chaotic and extremely impoverished. As he says, “We need an active state, but we need one that accepts a more modest role; we need the market, but harnessed by a sense of purpose securely grounded in ethics.” The active state must support those who fall victim to capitalism’s intrinsic process of creative destruction, ‘the very process that gives capitalism its astonishing dynamic’. A just society must be based on “reciprocal obligations” between members of the family, the larger society, between firms and their employees and also between nations, by forging reciprocal obligations via supra-national bodies. Society must restore its ethical foundations so that it does not get corroded from inside. Capitalism today is making people lead “anxious lives” in divided societies, yet it is “the only economic system that has proved to be capable of generating mass prosperity.” The Covid19 crisis has given the state an overarching, almost dictatorial authority over individuals’ lives and liberties. Governments needed that power to deal with such extraordinary situations, but are unlikely to give up these powers once the crisis is over. The state needs to be restrained and both the state and capitalism need to reset their goals to usher in a happier society based on mutual obligations, ethics and morality. In such a society, profit is not the objective but a constraint to be satisfied in order to make it achieve the larger goals, in which the ethical bounds of the state will be dictated by the ethical bounds of society, which in turn will be determined by the alignment of our personal needs to societal needs. The world probably needed a cataclysmic event like Covid-19 to prepare to reset itself to the moral balance it has lost.

The current pandemic is making us think a lot about the premises and consequences of capitalism while raising uncomfortable questions about our traditional models of economic growth. As governments increasingly resort to deglobalisation, protectionism and nationalistic policies, the globally integrated economic order is collapsing on itself. Post-crisis, we may see yet another New Deal, a more radical redistribution of wealth and income and the prospect of a Universal Basic Income for all, but the question is whether the traditional capitalist model can sustain it. Capitalist production demands continuous expansion of capital in order to produce more and make ever more profits, leading to what Marx had called “the epidemic of over-production”. To prevent recession and other disastrous consequences that would follow inevitably, artificial demands are created for products we do not actually need by promoting consumerism.

If the enforced lockdown has taught us one thing, it is that we need very little to survive and to add substance and quality to our lives. It has taught us that once we limit our consumption and activities pertaining to that, the environment becomes more sustainable and Nature rejuvenates. In our suffering and feeling of helplessness before a tiny virus, we have learnt the importance of empathy as much as the transience and meaninglessness of our wealth and accumulation of riches and possessions. It is teaching us that consumerism is probably not the best model for development, that there is a need to revisit our fundamental tenets of growth. Once the crisis wanes, we are likely to hear ever louder calls for a new social contract, for ushering in a world where happiness, joy and harmony, climate, environment and Nature will be reckoned as more fulfilling objectives of life as well as of business, much more than products, profits, possessions and wealth. Despite all its corrosiveness, capitalism’s power to create mass prosperity remains undisputed. By integrating the lessons learnt from the crisis into its production system, capitalism can redeem itself as a force for positive change in which businesses will continue to make profits but would share a substantial part of it for the welfare of society, enabling us to reconcile the individual objective of living with little with the social objective of moving towards a higher goal based on ethics, morality, trust and justice.

The writer is a commentator. The views expressed are personal