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The Great Paradox at the heart of capitalism

For capitalism to succeed profit needs to be a by-product of process.

Our attitude towards the salaries of Premier League footballers goes a long way towards explaining our attitudes to free-markets and capitalism.

Alexis Sanchez has moved to Manchester United on a reported salary of £350,000 per week, rising to £450,000 when his image rights are included, and £600,000 with potential bonuses.

While the January transfer window has now closed, football pay has yet again opened a debate which goes to the very heart of capitalism itself. People dismiss stratospheric pay as greedy and immoral, without thinking it through.

We need to go back to first principles: where does the £600,000 per week come from? The answer is that millions of people have a Sky or BT Sports subscription. Sky and BT then pay the Premier League clubs for viewing rights, and the clubs compete to win the best players. The fundamental point here is that this is an entirely voluntary process. There is no coercion, and Sanchez has a fundamental right to sell his services to the highest bidder.

Capitalism has transformed football. Compare the billions invested in new football stadiums today with the decrepit venues, hooliganism, muddy pitches, and rivers of urine flowing down the terraces in the 1970s and 1980s.

When people say the pay of Premier League football players is immoral, they are reiterating the oldest and greatest misrepresentation in economic history: that Adam Smith, the father of economics, argued that greed is good and that a free market economy and business success can only be built on the back of selfishness. This assertion is totally and utterly wrong, but that hasn’t prevented some of the loudest and most prominent economic voices reiterating it. Keynes stated that capitalism is the extraordinary belief that the nastiest of men for the nastiest of motives will somehow work for the benefit of all”.

This error is brilliantly exposed in a report, Making Capitalism Work for Everyone, from the Centre for Enterprise, Markets and Ethics (CEME). The report points out the inherent nonsense of the greed is good attack, that if it were true, Smith would have been claiming that free markets “magically transmute the lead of selfishness and exploitation into gold”. Smith recognised that people are motivated by self-interested behaviour, but he never condoned greed or selfishness. In his words: “there can be no proper motive for hurting our neighbour”.

CEME highlights the old truth that the core ethical consideration is the so-called Golden Rule: do unto others as you would have done unto you. In our football story, what matters is that all sides are happy. This is a mutually beneficial exchange where both parties agree their self-interest is best served – the player and the club. Neither party is damaged or plundered as a result of the deliberate actions of others, making the charge of greed or selfishness irrelevant.

This is the great paradox at the heart of capitalism. For capitalism to succeed profit is essentially a by-product of purpose. The best footballers and the best businesses will focus on their purpose. The money will be important, but it won’t be the number one consideration. This is the vision of capitalism that needs to be understood if the system is to survive and thrive.