This continues yours truly’s efforts to think aloud about the connections between economics and ethics – and ultimately the connection or common ground with the ‘common good’ language of Church documents like Laudato Si’. Apologies if I at times painfully state the obvious or painfully miss the point.
One of the striking things about John Kay’s book Other People’s Money is the amount of ethical comment on the behaviour of key participants in the financial sector over the last thirty years. There are frequent references to a number of leading figures who have ended up behind bars in the wake of the financial crisis of 2008. His descriptions of the trader culture that emerged within financial institutions in the course of the eighties carry clear ethical judgments:
‘The world Wolfe [in Bonfire of the Vanities] and Lewis [in an account of his time at Salomon Bros] described was aggressively male… That world is full of obscenity, fuelled by drugs-notably cocaine- and given to sexual and alcoholic excess. Young men-some with high educational qualifications, some with none-suddenly found themselves in possession of amounts of money far in excess of those they were capable of handling.’ (21)
‘The dominant ideology of the times legitimized the more aggressive pursuit of self-interest and encouraged a different and more limited view of the social responsibility of the large business organization…’ (22)
‘Their moral convictions [Thatcher and Reagan] found little to applaud in the culture of the trader. The Thatcherite emphasis on hard work and self-reliance sat alongside a belief that compassion should be a private virtue rather than a social practice. These are very different from the greedy individualism and sense of personal entitlement characteristic of much of the finance sector today.’ (23)
There are echoes here of Adam Smith’s description of the rich in which phrases like ‘natural selfishness and rapacity’ or ‘[their] sole end… the gratification of their own vain and insatiable desires’ occur. However Smith seems content (for metaphysical reasons, discussed below) to make the judgment about motivation, but to accept the behaviour that arises as a sad fact of life, on the grounds that the invisible hand works through even immoral characters pursuing profit for the ultimate good of all. In this regard he is probably inhabiting a not dissimilar moral universe to that of Cicero and the great and the good who populate his dialogues (Cicero’s writings provide a conceptual springboard for some of Smith’s and Hume’s ethical thinking). They sip their wine, deplore the degraded pursuit of wealth and power by others and celebrate the selfless service of the common weal by the (patrician and male) heroes of the Republic.
Kay, however, does believe that the behaviour he identifies in the financial sector can and needs to change, along with the structures that promote it. The final chapters of his book are devoted to describing the alterations in the structures and systems which would be needed for such change of attitude and behaviour to take root. The ultimate reasons for promoting change are (1) that the sector is no longer focused on its primary purposes in the service of the real economy (2) that its claims to be generating wealth for the national economy are spurious, since any wealth appearing in wage bonuses and balance sheets is ultimately extracted from other areas the national economy and (3) that the current structures will continue for the foreseeable future to generate intermittent economic crises whose costs will be paid not by their authors, but by the general public (as is currently the case).
As in the Mytilenean debate, the teeth of the argument for change are found in the common interest of the group addressed. We are not simply interested in what unfortunate traders might be doing to their souls. Nor do we just deplore the immediate victims of rapacious behaviour. Many people will deplore tyrants and regret the harm done by their depredations, but will also tolerate them if they believe they are in some sense collectively (at least for their corner of the collective) better than the alternative. Rather, the claims that doing what they do is for the ultimate good of all can be shown to be false. It is therefore no longer in the common interest for the current behaviour of large financial institutions to be tolerated or, more specifically, for the current structures to continue to receive unlimited public financial support. Such an argument fits well within a ‘common good’ framework. It gives a collective us and the individuals involved a reason not just to deplore bad behaviour, but to do something about it.
So it is interesting to compare what Kay says about ethics in his earlier book The Truth about Markets. In his discussion of the American Business Model – whose deconstruction is one of the objects of the book – he focuses on the model of human character and ethics that it implies. He contrasts several views around the issue of self-interest. One view suggests it is simply a mistake to deplore materialism and selfishness as vices. Thus if there is to be any redistribution, this should only happen as and when individuals privately happen to feel like offering charity. ‘Any further claim by the community would infringe our autonomy’. A milder (though according to Kay, a less coherent) view is that self-interest can be widely interpreted to embrace a vision of corporate social responsibility. A third suggests that there are simply two different spheres of ethics each with their own value set. Kay quotes Friedman: ‘the social responsibility of business is to maximize its profits’. He adds,
‘This position is acceptable to many business people because it puts few restrictions on their behaviour. The corollary is the general contempt amongst intellectuals for business and those who engage in it.’
His own view (as touched on below) is that the fundamental appeal to self-interest should be rejected because as a description of human behaviour it is false. The American Business Model is predicated on a flawed understanding of humanity. Here he is picking up on a line of thinking that runs from ancient moralists, through David Hume to Michael Sandel and other recent authors. The things that motivate us and that we care about are wide ranging and complex. Not all of our motivations are selfish, and when we are self-interested, the self-interest is not necessarily to do with greed. Without requiring Plato’s world of the forms to challenge the invasion of the human soul by pleonexia, observation of human beings and their concerns suggests that for most people, most of the time other things are more important.
‘Our sense of what constitutes a good life is very similar to that which Aristotle described more than two millennia ago. Most of us still find Thurow’s assertion that those who do not achieve great wealth are ‘by definition, second rate’ bizarre.’ (Markets 315)
However, self-interested materialism remains an important feature of economic life. This is why ‘Economic systems based on appeals to work for the common good will fail’. That can be read as a critique of a pre-Animal Farm view of communism, or perhaps to the occasional tone of Church appeals for a new world order. Nevertheless, Kay claims:
‘Self-interest is necessarily hedged in by the complex institutions of modern economic, social and political life – formal regulation and implicit rules, mechanisms of reputation and co-ordination, instincts and structures of co-operation, feelings of solidarity’. (Markets 316)
If this were not so, and the economy were entirely driven by individual greed, the result would be chaos. In fact economic motivations are multi-faceted, reflecting adaptive behaviour shaped by social and economic circumstances. Kay seems in part to be conducting a descriptive social/ethical anthropology in the Aristotelian style – though developed with the modern idea of evolved behaviour. There is, necessarily, an ambivalence in such description, between providing a limited objective legitimation of ethical view points (we can explain why greed is not good) and removing any reason for preferring one set of behaviours to another (everything is, after all, a fortiori adaptive). Indeed Kay elsewhere allows that the frameworks different political organizations will choose can change according to shifts in values (for instance from a greater desire for state support for needy citizens to a reduced desire for that support). Nevertheless, we can see in this line of thinking something of an abiding ethical parameter in the idea of evolved systems that allow people to flourish together – not only economically, but definitely including economically.
The talk of adaptation will sit uncomfortably with some, especially those who rely on a rule-based account of objective morality. However, in the realm of politics and economics supporters of objective ethics have struggled just as much as anyone else to identify constants. In fact the system of ‘disciplined market pluralism’ that Kay recommends as the only effective way of ensuring the real economic progress of polities has some analogies with the ‘common good’ of Aristotle and modern Church social teaching. ‘Common good’ is, as Pat Riordan suggests a heuristic concept. That is, it points us in a direction but does not tell us exactly what to do, because that is rarely possible. We can’t know until we’ve actually worked on it what a polity structured around the common good will look like. We discover this as much by trial and error as by planning. Nevertheless, the label suggests some of the things that we might expect it to yield, including happiness, individual flourishing, having enough to eat, good relations with the neighbours. Plato’s first sketch of an ideal state is a society of subsistence farmers. Cicero’s great and good are moved ‘in our consultations and in our labours to render the life of human beings more secure and more wealthy’. Prosperity with or without growth.
So something like Kay’s ‘disciplined market pluralism’ within the context of the ‘embedded market’ could be a candidate for specifying the ethical parameter ‘common good’ at least in the area of economics (it wouldn’t be the only candidate). The idea of the embedded market – a market that has integrally evolved within a particular society, with specific laws, customs and values – puts him on the side of the so-called ‘communitarian’ philosophers (he names MacIntyre, Sandel, Taylor and Walzer), who have in different ways challenged the ‘rational self-interest’ assumption that lies behind the diverse political philosophies of Nozick and Rawls and underpins extreme market fundamentalism. He disagrees however with the belief of some communitarians that there is necessarily a conflict between the aims of the market and the aims of a community.
Thus he discusses MacIntyre’s contrast of two approaches to fishing, the one driven by the market imperative to maximize profits, the other an activity embedded in the life of small community. From MacIntyre’s point of view, there is something inherently valuable about the latter, with the tight and supportive community interdependence it encourages and the pursuit of fishing well as an excellence (an Aristotelian virtue or aretê) in its own right. Something valuable is destroyed by the pursuit of the profit motive. Such an argument, as it stands, leaves us with the dilemma of a choice between a nice but relatively unproductive model of human social and economic collaboration, and an unpleasant, socially corrosive, war-of-all-against-all environment which yields great riches. Hard-nosed realists will reply with the quip ‘if you want a friend, get a dog.’ How could you win this Mytilenean debate?
Kay however suggests that the answer might be surprising. The second approach, with its evolved and balanced use of co-operative skills and focus on the art of catching fish (rather than pursuing profit) may well be more successful than the first. He cites the case of the Prelude Corporation whose aim to dominate the fishing industry with the power of technology and money ended in failure (Markets 350). He draws this extended conclusion:
‘MacIntyre’s fishing expedition reveals a deep truth about markets. We live in a complex world which we only imperfectly understand. Our success in it depends crucially on our relationships with other people. In this environment, what has evolved will often outperform what has been designed, and purely instrumental motivation will often fail in its objectives. This gives rise to the paradox of obliquity revealed by the relative success of MacIntyre’s crews: the crew which values the practice of fishing is more financially successful than the crew which is organized in pursuit of financial goals.’ (ibid)
Exploring the idea of obliquity more widely, he makes a comparison with John Stuart Mill’s recognition that happiness could only be achieved by not making it the direct end of one’s activities. He adds, by way of explanation of the phenomenon, an important and fundamental critique of ‘rational-self-interest’ as a framework for interpreting, let alone prescribing, human economic activity: ‘We cannot be rational, calculating, maximizing agents, because we do not have and never could have, sufficient knowledge of the world.’ (Markets 351). It is this observation about imperfect knowledge that explains both why the evolved collaborative fishing practices of the villagers are so successful and why ‘maximising shareholder profit’ is an impossible goal for any company. He concludes ‘Profit is [not] the purpose of a market economy, and the production of goods and services… a means to it: the purpose is the production of goods and services, profit the means.’ Companies which focus on producing what they produce well will be more successful at negotiating to the complex environment in which the production takes place than those that focus on maximizing profits.
It is against this background that Kay suggests that for the goods which might enhance the life of a society to be produced most effectively, there needs to be a structure which allows for experimentation and which quickly demonstrates failure. Such a structure he calls ‘disciplined market pluralism’. The pluralism (which sits fairly comfortably with Catholic Social Teaching’s ‘principle of subsidiarity’) means ensuring a number of different agents with the freedom to experiment, but without over-prescription from a central authority. The discipline means in part the sort of responsibility that must accept consequences of failure (while avoiding the detrimental back-covering behaviour encouraged by a culture of blame). Here he is rejecting forms of corporate or state intervention that artificially preserve projects that would otherwise have naturally failed and so allowed alternative avenues to be explored. In part it means the governmental or legal framework that sets targets or standards within which the work is to be done. Such ‘market pluralism’ recognizes that not everything is best dealt with in the market place. Kay cites as natural monopolies utilities networks (rail, telecommunications, water, electricity) – though not necessarily the providers – healthcare and education.
So we have an ideal structure for economic development which is neither the minimalist state of Nozick nor the command economy of the old Soviet Union. The structure is inherently social and cognate with the real motivations and aspirations of most human beings. For it to work to best effect, the different actors need a range of ‘virtues’ (characteristic dispositions for behaviour) that do not include the pursuit of personal gain at all cost. Given that human behaviour is adaptive, careful thought needs to be given within organizations at every level of society to the quality of behaviour it is encouraging. For greed does not, after all, appear to be good.
Something like this, if I have read correctly, gives Kay his social and ethical framework for criticizing the current financial regime. The reason to set up systems that rebuild trust, integrity and human knowledge in the relationships between agent and client by changing hearts (rather than complexifying regulation), like the Mytilenean debate, includes pragmatism but is more than pragmatism. The roots of his critique overlap (though do not identify completely) with the roots of Church concerns about ‘the profit motive’, fairness and solidarity. The critique in Other People’s Money itself offers powerful, persuasive and above all specific content for those who share such concerns but (like me) simply do not know or understand enough to counter experts with an interest in the status quo who tell us that there is no real alternative.
 He describes these as providing payment systems, matching lenders with borrowers, helping us manage personal finances across lifetimes and between generations and helping individuals and businesses manage the risks of ordinary life.
 In Global Ethics and Global Common Goods
 MacIntyre 1994.