by Jules Evans | Jun 30, 2009 | Economics and development
I enjoyed Andrew’s post below, though I’d dispute the assertion that Adam Smith and the other ‘great theorists’ of capitalism thought it was amoral.
That’s not true, they thought capitalism in general made us more moral, more civilised, though they also saw this wasn’t always infallibly the case. But if you read Smith, Hume, Shaftesbury and the other great theorists, you’ll see they tried to make a moral case for capitalism and commerce.
In terms of the ethical implications of the crisis, the basic ethical point, which others have discussed but which is still unaddressed by governments, is this: our present economic system is palpably unfair, in that the financial services sector is allowed to live by different rules to the rest of the economy.
The financial sector has, for the last 30 years, subjected the rest of the economy to its pitiless attention, privatizing it, stripping off assets, selling off assets, and imposing ‘market efficiency’ (ie job cuts), with an evangelical zeal.
If a company was failing, we were told, it should be carved up, sold off, or allowed to fail. This was the efficient way.
Now, banks right across the world are failing. But we are told they are too big to fail, they are of ‘systemic importance’, and so they are propped up with our money, and allowed to continue their reckless activities until the next bail out, in a few years time.
The financial sector created a whole new moral lexicon – ‘shareholder value’, ‘rationalisation’, ‘market efficiency’, ‘transparency’ – which we absorbed to an extent we perhaps haven’t realised. Now, this rhetoric has been exposed as self-interested, and hypocritical.
Our societies reward bankers for gambling, often gambling badly, with the highest salaries in the economy, with the possible exception of a handful of equally juvenile Premiership footballers. Meanwhile, teachers, nurses, social workers – people who are genuinely contributing to the public good – are paid a fraction of that.
Our present economic system rewards gambling and greed, and punishes altruism and self-sacrifice.
And we let bankers get away with it – as soon as they go bust, we bail them out, get them back to the poker table, and applaud them for their pluck and acumen when the stock markets go up.
It is, as others have pointed out, a captured system, rigged to serve the interests of those in the financial sector.
A genuinely ethical economic system would value teachers, nurses and social workers as among the most important figures in a society, and they would be paid accordingly, or at the very least better than the pittance they earn today.
Thatcherism has left us a system where we hold the financial services sector up as a paradigm of excellence, a beacon leading the rest of us to prosperity. It is not. It makes us both spiritually and literally poorer, and if we have to subsidize it because it’s of ‘systemic importance’, that means our system as it presently exists is broken.
by Andrew Pickering | Jun 30, 2009 | Economics and development, UK
The financial crisis has led to a lot of talk about the failure of ethics in the banking sector. Greed overtook wisdom, we’re told. No doubt this is the case. Yet whilst bankers are to blame, it’s hopelessly naïve to suppose that a ‘return’ to some golden age of ethical business will solve all our problems.
There is a parallel with the expenses claims of British parliamentarians. Caught with their hands in the till, some cried out that the system was to blame for letting them get away with it. For all the cheek of that response, there is a lesson in it.
Individuals must take responsibility for their sins. But if we’re serious about making sure that these things cannot occur again, it really isn’t enough to call for more ethics in business. In fact, I’m beginning to suspect that this is a way to avoid having to enact any real change. As the crisis seems to be settling down, the British Chancellor of the Exchequer Alistair Darling has shied away from significant reform of the regulatory system and chose instead to blame bosses for being irresponsible. ‘Don’t worry,’ we seem to be being told, ‘we’ll just ask bankers not to be greedy any more.’ Forgive me, but I had hoped for something more robust.
It must be conceded that in sharp contrast to the plans of the British government, Barack Obama’s planned reforms are substantive and bold. But on a global level, concerns are growing that the opportunity for broader reform that this crisis provides is being missed as optimism returns alongside talk of ‘green shoots of recovery’. The Bank for International Settlements (BIS), often described as the central bankers’ central bank, published its annual report on Monday. According to the FT, the BIS:
said it was vital that thought be given to the ongoing structure of the financial system while the patient was still on life support. Efforts so far, it concluded, had been a “messy mixture of urgent treatment designed to stem the decline, combined with an emerging agenda for comprehensive reform to set the foundations for sustainable growth”.
It highlighted two main risks: first, that not enough will be done to ensure a durable recovery from crisis; and second, that the emergency action to stabilise the financial system will undermine efforts to build a safer system.
The G8, too, is jumping on board the ‘return to ethics’ bandwagon. MBA graduates have set up their own code of ethics, taking inspiration from the medical profession’s Hippocratic Oath. This is welcome. We do need to create a public environment in which ethics and responsibility are more emphasised (and more respected), but to expect a firm whose raison d’etre is the pursuit of profit to apply the brakes is painfully naïve. Business (and politics) should be conducted on more ethical grounds. This year’s Reith Lectures, given by Michael Sandel, address this point well. But in the meantime (between now and hell freezing over), we need rules that acknowledge people’s tendency to ignore ethics, especially in the heat of the moment. The great theorists of capitalism itself, such as Adam Smith, knew well that the system wasn’t moral. But neither is capitalism immoral – it’s simply amoral. If we want a moral system, we have to bring in the morality ourselves. But to expect bankers to do so on their own is to invite a conflict of interest. We do not expect the players at Wimbledon to make line calls on their own shots and, similarly, we should not expect the financial sector to judge the morality or wisdom of its own practices.
This is an important moment, but it’s not a moment of a new ethical kingdom, or of a new form of capitalism. Instead, we need to return to an older scepticism about the role of private interests in our society and the degree to which the doctrine of self-regulation is a realistic solution.
by Jules Evans | Jun 30, 2009 | Climate and resource scarcity, Economics and development
News in the FT today that three environmental groups have filed a suit to make sure the Royal Bank of Scotland does more to promote renewable energy, foregoing its traditional dominance in oil and gas projects.
Ian Leggett, People & Planet’s director, said: “The government now controls RBS and has an exceptional opportunity to drive investments in low carbon jobs and infrastructure, not to repeat the recklessness of the past.”
As I’ve argued before, state-owned development banks have a key role to play in transforming our economies from a high to a low carbon footprint.
Modern project finance – particularly the use of the special purpose vehicle – was of great use in the 1970s to drive the development of the North Sea oilfields. It has been fundamental in creating the hydrocarbon society of the last 50 years.
We now need it to help us develop the post-hydrocarbon society.
While the development of the north Sea oil sector was mainly done by private oil companies and banks, although with some tax incentives from the government, I would suggest the construction of the post-hydrocarbon society is better driven by state-owned banks and retail investors than private banks, because these are capital intensive projects aimed at protecting the public good rather than private wealth.
RBS, with its expertise in project finance, is a good place to start.
by Peter Hodge | Jun 30, 2009 | Conflict and security, South Asia
We’re so obsessed with Islamic insurgency – see Kilcullen’s The Accidental Guerrilla – that we risk ignoring other types of insurgency. Like the Naxalite Maoist revolt in central and eastern India.
Michael Spacek, at India’s Forgotten War, writes about how the Naxalites recently took control of a large district in West Bengal, albeit briefly – “the Maoists have successfully been exploiting the seething resentments against West Bengal’s communist government and have steadily been increasing their influence in the state”.
I may be going out on a limb here, but like evangelical Christianity, Maoism is going to have a big future in violent and poor places in the 21st century. Maoism and Christianity are revolutionary creeds which have successful and adaptive operating systems. Both have simple but effective messages which speak powerfully to the dispossessed in society. Both have many disciples who aggressively preach and die for the cause. Both exploit local grievances and traditions to the max.
by Richard Gowan | Jun 28, 2009 | Conflict and security, Cooperation and coherence, Europe and Central Asia
From a new op-ed by Dmitri Rogozin, Russia’s ambassador to NATO, on the “abduction of Europa”:
Today, the identity of the west is being challenged by colossal cultural and spiritual pressure from the south. Nations conquered in the past are now invading Europe, changing dramatically not only its external but also its inner world. Europe can no longer assimilate huge inflows of alien cultures. Misinterpreting the sage principle of ‘tolerance’, the west has abandoned the fight to preserve values inherent in European civilisation. Instead of instilling European culture in their new compatriots, the west’s elites have concealed the problems in closed communities. This cowardly escape from the realities of globalisation will lead to the demise of Europe and its culture.
Western elites have sought to substitute the process of globalisation with plans of salvation for European civilisation. But new projects, such as NATO’s enlargement to the east and the Eastern Partnership, pose a greater threat to Europe than if the west took no action at all. The wider that NATO’s and the EU’s areas of responsibility become, the weaker they become. Taking up the problems and disputes of Europe’s eastern half is wearing out its spirit as a civilisation.
Whether Brussels likes it or not, Russia is becoming the centre of the European tradition. It is steadily imparting European culture to eastern territories. José Manuel Barroso and Javier Solana, who in May visited the grand European city of Khabarovsk in the Russian far east, could see for themselves how outdated is Charles de Gaulle’s slogan of a “Europe from the Atlantic to the Urals”. The Russians have expanded Europe to the shores of Alaska and the Kurile Islands.
Whatever Russia’s developmental problems, they are insignificant compared to the threat to the survival of European civilisation. The west may be procuring eastern European countries for itself, but, in a genuine cultural and spiritual sense, western Europe is shrinking rather than growing.
Thus, the paradox today is that Europe’s western half is shrivelling, while its eastern half is expanding. Russia is now Europe’s spiritual guardian, as Byzantinum prolonged the ‘cause of Rome’ for a millennium after Rome collapsed under the onslaught of barbarians. The writer Fyodor Dostoyevsky argued that, for Russians, Europe is a ‘second fatherland’. Fear of the new Russia is simply unjustified. Russia is the west’s most natural and reliable ally. The sooner the west realises that, the greater the chance of speaking of our common European fate not just in the past tense.
I know that Russia wants to be taken seriously as a great power and all, but it would help if its policy pronouncements didn’t read like they were based on a second-hand copy of the Decline of the West and half a bottle of old-time vodka.
