SOCIETY AND THE MARKET. MONEY AND MORALS

Is there an ethical void between the economy and society?

Morality (from the Latin moralitaser "manner, character, proper behaviour") has several meanings. In its descriptive usage, morality means a code of conduct held to be authoritative in matters of right and wrong, whether by society, philosophy, religion, or individual conscience. Many religions have developed moral codes to guide individuals on how to lead a 'good' life, but which also act as a binding force in society. Morality is thus not simply a framework for individual guidance, but also for enabling people to live together in society.

In the economic sphere, nineteenth century Britain saw the rise of a class of financier and industrialist, many of them from the Quaker religion, who reacted against the exploitation of the working classes by the then prevalent system of laissez faire free market economics. The Cadbury's, Fry's, William Lever and before that Robert Owen were driven by the belief that all humans merited basic decent working and living conditions. Their convictions were based on religious and ethical beliefs - essentially that it was wrong to cause misery and exploit others. The laissez faire philosophies that prevailed in the eighteenth and part of the nineteenth centuries were generally silent on the subject of ethics.

Out of these convictions came the Victorian idea of the "Happy Coincidence", the notion that not only was it morally good to treat people with respect, but also that they would be more productive and happier if their living and working environments were of a decent standard. Thus the entrepreneur could comfortably combine moral decency with wealth creation.

Later, John Spedan Lewis, founder of the hugely successful John Lewis group, carried the Victorians' ideas further by passing his company on to his employees who became partners in the enterprise. His stated principal aim for the company was to optimize the happiness of its partners. To-day the John Lewis Group has some 70,000 partners who share in the governance, strategic direction and profits of the enterprise.

These great industrial and commercial pioneers believed that there was no dichotomy in business between peoples' spiritual and secular natures and that morality should be an integral element of doing business.

If we move on to the 20th century, democratic socialists also believed that society and the economy were closely intertwined and the aim of statesmanship was to create a good society, fair to all and providing equal opportunities and access to work, education and health provisions. From these values came the National Health Service and universal state secondary education. A key socialist conviction was that the economic and social domains were two sides of the same coin - in other words, that the market and society could not be separated. Socialists believed that the market had to be harnessed and controlled for the good of society.

The triumph of democratic capitalism

The twentieth century also saw the Russian Revolution and the great struggle of ideologies between what emerged as Soviet system of totally centralized economic and political power and democratic capitalism. When eventually the Soviet system collapsed under its own corruption and inefficiency, it was felt by many in the West that a superior system had 'won'. Nowhere was this feeling stronger than in the most powerful Western country, the United States, where it rapidly became axiomatic that the American Way had triumphed and a new world order had become established. 'Socialism' had been defeated by triumphant democratic capitalism That world order was underpinned by a set of political and economic dogmas celebrating the power of the free market as a mechanism for fulfilling most human needs.

Free market theory asserts that human beings are essentially self-seeking and materialistic; that they are likely to be most fulfilled by freely pursuing their own interests. To the more ardent, the idea of society is either ephemeral or separate from the free market. The market is competitive and rational - it allows the most deserving to win and to enjoy the benefits of their superiority. Markets should not be distorted by extraneous ideas of moral right or wrong. They are quite separate from the community or society, which are the proper domains in which moral and economic dilemmas created by market winners and losers can be played out. Free marketeers argue that the state has no place messing with the market, however all but the most ardent agree that it has a residual role in providing a welfare safety net for the weak and poor. Similarly, it is right and proper for people who have won in the market to return something to others through philanthropy.

So the free market creed has become the prevailing economic religion in the United States, promoted globally through US-dominated institutions such as the IMF and World Bank.

Britain espouses the free market

In Britain, free-market philosophies have been practiced since the accession to power of Margaret Thatcher, who famously asserted that "There is no such thing as society, there are individual men and women, there are families". Her successors, in the form of John Major, Tony Blair and Gordon Brown, have all been deeply affected by free-market ideologies, continuing the march of the market into the public domain through such ideas as John Major's Citizens' Charter, 'Choice' in health and education and introducing the private sector to participate in the provision of healthcare and major capital projects in the public sector. We have witnessed not so much the separation of the market and society but the dominance of society by the market. Britain has become a kind of test bed for free-market ideas. Those in New Labour who could have been expected to resist these ideas have remained remarkably silent and subjected to the accusation that they represent discredited old fashioned socialism - they are anti reform and not 'modern'. They appear to have lost the intellectual battle, having little to propose that might counter free-market ideas.

So Britain has experienced about twenty-five years of undisputed free-market policies. A quarter of a century is probably enough to take stock of what has happened to the economy and to society. So what can we learn from this experience? Cut to the early 21st century and the New Labour era.......

The fruits of the free market

Peter Mandelson, erstwhile New Labour minister, twice fired for dubious financial dealings, put the position of his party's leadership brilliantly clearly, "We are intensely relaxed about people becoming filthy rich". And indeed, his party has followed this dictum to the hilt. Just think of the cash for honours scandal, which, despite the absence of a prosecution, has left behind a nasty taste of dubious dealings. Suspicions that all was not well have been confirmed by the latest bizarre funding scandals, including the amazing episode of cabinet minister Peter Hain, who seems to believe that he has done no wrong in not reporting political contributions. It appears that New Labour has used very dubious methods to hide some of its funding sources, and as with many such scams, the pigeons are coming home to roost.

If these episodes were isolated incidents, we could all be intensely relaxed along with Mr Mandelson - but New Labour, following John Major's particularly sleazy Conservative administration, initially promised to be ethically impeccable, 'whiter than white', then very rapidly became mired in suspicion. Bernie Ecclestone, Formula One motor racing impresario, donated £1 million to Labour party coffers. Shortly after, the government allowed an exception to the ban on sporting tobacco advertising for..... you've got it, Formula One motor racing!
Following on from this has been a succession of dubious relationships - with the Hinduja brothers, Lakshi Mittal of Mittal Steel, Lord Levy and a host of others who became snarled up in the cash for honours investigation. Suspicions have also been aroused by such incidents as the award of a large government contract to Powderject, whose owner was a New Labour donor, David Blunkett's involvement with DNA Biosciences and the scandalous sale of defence technology company Quinitiq, making millions for ex-senior civil servants involved in the sale and for Carlyle, a private equity company, closely involved with ex-premier, John Major.
Lord Gilbert, a former minister of defence procurement, said: "At the time I told the defence secretary this would be a bloody scandal, but the Treasury under Gordon Brown insisted on selling a stake to cut the defence budget. What the Treasury did not understand was that both British and US research workers funded from the public purse would resent the fruits of their work going to enrich individuals in a private company". Quite so - it's the same kind of process that created Russian oligarchs but on a smaller scale.
Before that, Geoffrey Robinson, former Paymaster General, has had a series of interesting relationships with Robert Maxwell and of course, Peter Mandelson.

As important as the higher profile scandals is the willingness of politicians to accept largesse from people who just might be interested in influencing their thinking. In this regard, the Conservative Party is a major participant - many Shadow Cabinet members receive contributions from individuals, who on investigation turn out to be property developers, private equity investors, institutional investors, PR executives and hedge fund managers. And of course, there has always been the suspicion that Lord Ashcroft, the super-rich tycoon of uncertain domicile, who 'bought' Belize, a tax haven, may have also placed a claim on the Conservative party as well.
Nothing illegal here, but the average citizen might think twice about believing that senior politicians can accept money without being open to just a little influence from donors. It is this sort of acceptance of support from finance and industry that may lead some to wonder about the values of the people doing the accepting.
See politicians and the finance industry.
Those who are interested in a closer examination of the history of major and minor sleaze indulged in by politicians of the main parties can regale themselves by visiting: www.projects.ex.ac.uk/RDavies/arian/scandals/political.html

In the United States, it is impossible for a candidate to stand for any significant political post without the backing of great wealth from individuals, corporations and sundry pressure groups, all of which are likely to wish to have a voice after the candidate gets elected. In this regard, the US may be closer to a Plutocracy than a Democracy. The relationship between the Bush dynasty and the oil industry is a classical case of industry support, which may just possibly be reflected in the administration's attitudes to global warming.

Free financial markets

At a more strategic level, we have witnessed a process of seismic change in the Anglo-Saxon worlds of finance and industry, driven by free-market ideas. The deregulation of financial markets has caused the confident growth of massive global banks and a host of subsidiary investment institutions. Free-market pressures have meant that the world financial system is probably out of control, as much of the money-making is done through myriads of hedge funds and hidden derivative trading devices, many located in tax havens well sheltered from the prying eyes of regulators and tax authorities. 2008 will reveal the extent of the disaster thus caused for the economy and ordinary employees, house-owners, consumers and savers - the usual cannon fodder of the financial system.
April 2008: Indeed 2008 has revealed the scale of the disasters hidden in the global financial system.
Oil prices are being inflated not just by political events, but by a veritable industry in price speculation. Many of the big investors and investment banks have a hand in this lucrative market. April 2008 - we learn that some part of the current global food crisis is probably caused by speculators in the financial markets, revealing that nothing is off-limits if there's money in it.

Closer to home in the UK, we see the massive sell-off of technology industries to foreign buyers and the soaring pay of top managers, quite unjustified by their companies' performances. The displacement of responsible investment by speculation, excessive dividends to investors and a squeeze on employees' pay and benefits amounts to a new industrial revolution, one which has unbalanced the economy and created a permanent and rapidly worsening balance of payments deficit.

The story from 1970's free-market advocates was that private and deregulated markets would be more efficient and deliver vastly better customer service than publicly-owned provision.

The truth is different.

The financial markets and many large industrial corporations have a lurid history of malpractice. This ranges from pensions mis-selling to the disgusting behaviour of Farepak, which dumped thousands of poor savers just before Christmas 2006 (It is now Christmas 2007 and these people have not recovered their savings). Farepak's chairman, Sir Clive Thompson, "Mr. 20%", an erstwhile hero in the City for running Rentokil plc into the ground and HBOS, a massive bank, have done little to help the disadvantaged people whose lives they blighted. Equally dubious is the growing ownership of homes for the elderly by private equity investors, interested in extracting the maximum returns or closing the homes.

The values of the financial services industry can be judged through a 30-year history of malpractice, starting with the pensions mis-selling disgrace of the early 1980's.

The range and scope of malpractice and incompetence by large industrial and financial enterprises is too long to go into here.

Some of these horrors are listed elsewhere in this site, and they continue unabated. In December 2007, it became apparent that major banks have been using charitable trusts as fronts for tax avoidance - the sums involved run to many, many billions - the benefits to the charities, virtually nil. In fact most didn't even know of the malpractices.

Industry follows suit

The history of the last 20 years is littered with examples of the disgraceful behaviours of large commercial institutions. Enron, Worldcom, Tyco, BAe Systems, BP, investment banks, clearing banks, Pharma companies, supermarkets and privatised utilities have all been caught out breaking accepted ethical norms.

Some believe that modern corporations are becoming reformed characters, espousing green and humanitarian causes. The more sceptical amongst us wonder whether a lot of this much-heralded change is skin-deep spin. BP was feted for its green and people-oriented policies and its CEO rated a modern-day hero until the truth was dramatically revealed by a huge explosion in Texas and massive oil leaks in Alaska, the results of ruthless cost-cutting. The electricity and water utilities have an unsavoury track record of exploiting customers and, it seems, underinvestment. It is difficult to believe that any company subject to the pressures of the investment markets, hedge funds and the threat of private equity can pursue consistent ethical policies if they displease the money men.

Joel Bakan's film, 'The Corporation', which characterised large corporations as driven primarily by power and money, with personalities akin to clinically diagnosed psychopaths, still seems to hold quite a lot of water.

For a psychoanalytical sketch of the financial markets, see The personality of the financial markets.

The dire state of English national football is another testament to the misplaced belief that money is the root of all success.

Wealth and inequality

On another dimension, the enormous and runaway earnings of top players in the financial markets and large corporations can be argued to be at the least distasteful when they are compared with the lot of the rest of the working population. Of course, this situation is hugely exacerbated by the ability of the super-rich to evade tax, a facility not readily available to the average citizen. At the beginning of 2008, accountants PWC estimated that tax evasion by the rich amounted to over £13 billion annually. Later estimates place this at somewhere between £25 and £40 billion.
One backcloth to all of this is a massive growth in inequality and relative poverty - it is estimated that about 30% of the UK populace is excluded from the bonanza that has been enjoyed by the richest 20% or so. It is now the case that 1% of the UK population owns 25% of the wealth, whereas the bottom 50% own just 4%. In the US, inequality is even more extreme.
On a global scale, the massive wealth divide between poorer and wealthier countries is actually widening. This fact is somewhat masked by the growth of the Chinese and Indian economies, but the condition of sub-Saharan Africa and some East Asian and South American countries is a running sore. The roles of the World Bank and the IMF are crucial - it can be credibly argued * that these institutions are the instruments of the richer countries, especially the US, use to maintain their economic power and privileges.
*Globalisation and its discontents, by Joseph Stiglitz, Penguin Books, 2002.

In days of yore, such manifestations would have raised a storm. Today, what do we hear from the leaders the two main UK parties? Silence - sometimes broken by warm praise for the rich and powerful.
What of political leaders in the US? President Bush's attitude can be judged by his grim joke to wealthy supporters when he welcomed them as the 'Haves and Have-mores'. It is left to the Trades Unions to raise the alarm about how amoral all of this seems and so far they have been ignored - and they would say that, wouldn't they?

What is the reaction by many UK politicians to the US? Admiration and a slavish wish to ape that country and its economic and social philosophies. This can be seen through the welcome offered by New Labour, which would surely be copied by a Conservative government, to US healthcare companies into the NHS.
See the Observer of 11. 11. 07. Under the headline: "Blair's adviser on the NHS now runs a $25 billion US health firm. Soon it may be looking after you". "In his first interview since leaving Downing Street, Simon Stevens explains why the NHS must welcome private money if it is to provide the best possible care".
And indeed Tony Blair was totally convinced that the private sector was a magic wand that would fix the NHS and virtually everything. He seemed deeply convinced that the US healthcare system was a model to copy, despite the horrendous costs and poor public health record in its home country. His successor seems to be following in his footsteps by pursuing reform through the private sector, as reported in the Observer newspaper:

"Brown will tomorrow show his determination to embrace radical reform when he throws his support behind a groundbreaking welfare reform report issued last year by David Freud, an investment banker. The Treasury last year dismissed one of the report's most radical proposals, which had been welcomed by Blair: to fund contracts for the voluntary and private sectors to help the long-term unemployed return to work in 11 pilot areas.

Purnell told The Observer that the government will endorse the report and go further. In language that would once have sparked war between the Blair and Brown camps, Purnell said that Labour is 'ideologically neutral' between the three sectors - private, public and voluntary. 'Progressives want to make the world a better place. If people can do that using the private sector, the public sector or the voluntary, why not? We are ideologically neutral between all three; we want to use all three." Ideologically neutral equals having no ideology?

Given the history of the private sector when welcomed into public services, 'ideologically neutral' is likely to mean more private provision. Given the track record of the private sector in everything from prisons through health clinics to school maintenance and PPP contracts, this is hardly good news.

What lies behind this history?

To-day, the dominant economic paradigms are laissez faire and free markets. The London financial markets are very lightly regulated, the most basic of utilities are privatised oligopolies and the private sector is increasingly involved in the provision of public services. What is described above is a product of over 25 years of the free market. So is free-market economics lacking a moral dimension?

To consider this question, we need to understand the roots of free market theory.
Most of the myriad of pro-free-market Foundations, Institutes and the like emphasise the following:

Deeper is a 'model' of human beings as being essentially self-interested, concerned mainly with satisfying the material needs of themselves and their immediate relations.
This belief about people was reinforced from the world of genetics: a version of gene theory postulated that people were programmed to fulfil the selfish drives of their genes, thus their behaviour was determined by forces beyond their understanding.
Human behaviour was then rolled up in a neat package by 'Game Theory', a mathematically-based system aiming to demonstrate how players in a competitive environment could act to get their way, whilst taking into account that all other players were doing the same.

All of this was espoused by free-market economists, who were greatly attracted by mathematical modelling and the idea of powerful and invisible forces that governed human behaviour making it both predictable and controllable.
So free market economic theory postulated that people were rationally calculating animals, whose behaviour was driven by an underlying desire to serve their material interests.

Just in case readers might think this is fanciful, Matt Ridley, ex-chair of Northern Rock, the biggest banking disaster for several generations, if not ever, was a geneticist who had extreme free-market views. These were based on his convictions about the fundamentally selfish nature of humans and seemed to make some believe that he was fit to be chairman of a huge financial institution entrusted with the savings of hundreds of thousands of ordinary people.
Here is a summary of DR Ridley's belief system, described by George Montbiot:

Ridley's core argument, which he explains at greater length in his books, is that humans, being the products of natural selection, act only in their own interests. But our selfish instincts encourage us to behave in ways that appear altruistic. By cooperating and by being perceived as generous, we earn other people's trust. This allows us to advance our own interests more effectively than we could by cheating, stealing and fighting. To permit these beneficial genetic tendencies to flower, governments should withdraw from our lives and stop interfering in business and other human relations. Ridley produced a geneticist's version of the invisible hand of the market, recruiting humanity's selfish interests to dole out benefits to everyone.

Understanding this background, it is hard to conceive of how free markets can have a moral dimension. The market is a 'space' where people and institutions transact to fulfil their economic and material needs. Free-market theory has it that the sum total of individuals' efforts to fulfil their needs will somehow become a 'magic hand' that will in the end be good for all. This does not add up to a built-in moral compass. Markets are neither moral or immoral - they are amoral. Furthermore, the free market is a hypothetical concept as there is no such thing. Unless they are imposed from outside, like that of post-Soviet Russia, markets are products of the cultures that spawned them and would not function without a framework of law and regulation produced by people, not by some invisible hand. Economist John Kay asserts that the current version of market fundamentalism derives from what he calls the ABM -American Business Model, which may be fine for that country, but is not a universally applicable template.

Experience tells that the 'freer' a market, the more it is susceptible to manipulation by those that have power. The Russian experience after the fall of the Soviet system is an awful example of the impact of a free market unregulated by inadequate legal, institutional and moral frameworks. In the US and UK, theoretically two of the freer market economies, rich and powerful people and institutions have taken control of the markets, to the detriment of the interests of the less influential. The observable impact of free markets is inequality and the appropriation of an inequitable portion of societies' resources by the rich and privileged.

It seems that economic and social morality is rooted in the idea of society serving the needs of all its members. It stems from a consciousness of belonging to a community and the collective efforts of people to make a contribution to something far wider than self and their immediate interests. It rests on human relationships and concerns for others, not abstract concepts like market forces.
In this regard, the market is a product and integral part of society, not a disembodied entity standing apart and subject to different frameworks of rules and morality. A moral society is one that harnesses the power of the market and ensures that its benefits are equitably deployed for the good of all.

Christianity as a guide to morality

In the West, the Judaeo-Christian tradition has underpinned much of the ethical and religious philosophies that informed societies on what was right and wrong.
A rapid scan of Christian doctrine emerging from the bible leaves the strong impression that Christianity is based on:

It doesn't take too much imagination to see that free-market fundamentalist views on laissez faire economics ignore or are at variance with some of these core Christian beliefs.

Are there societies that are more aligned with Judeo-Christian ethics?

Some societies do seem to have low levels of inequality of wealth and opportunity, excellent education and health systems with very good outcomes for all and equality of employment opportunity based on good education. They also seem to have found ways around the big-versus-small government dilemma, by involving key stakeholder groups in partnership with government in the determination of social and economic policy and devolving responsibility for implementation to employee and industry bodies and local government.
These societies also seem to be economically successful, fostering high levels of enterprise, high added value, excellent job creation and a high standard of living.
Examples can be found amongst some Nordic and northern European countries.

So what defines these societies?

Research has identified a number of traits that defines these so-called Social Market societies.
They:

This model of an ethical society goes substantially against the grain of free-market philosophy. In this case I would argue for empirical judgments to be made. The key question would be:
Are those societies that we have rated as ethical economically or socially handicapped by comparison with those (UK, USA) that have huge levels of inequality and disadvantage seemingly built into their fabric?

Factors to be taken into account include levels of inequality and poverty; quality of health, education, employment and social provision, democratic involvement of all key stakeholders and economic measures such as GDP and enterprise. Considering these factors, it would appear to me that the social market nations tend to be highly successful, combining prosperity with a healthy society.

The British tragedy - a personal view

In the end, I would argue that the gross levels of inequality and manifest lack of social cohesion that have become salient features of the UK and to an even greater degree the US, are strong signals that we have mislaid our moral compasses. It seems that a wholehearted belief in free-market fundamentalism is a root cause of gross inequality and deprivation as well as the creation of great wealth.
Far from liberating everybody to follow their legitimate interests, free markets have been hijacked by the richest and most powerful players and become playgrounds for the greediest members of society to sequester grossly inequitable portions of society's wealth. The notion of free markets being good for all is a malign fantasy.
Top politicians in both major parties seem quite unwilling to draw attention to the cancer of inequality in the bowels of society. Both are probably terrified to point out that the only known route to shape a more equal society is to invite the wealthy players, corporations and individuals, to make a fair and equable contribution towards its wellbeing. It is estimated that the total amount of tax avoidance by corporations and individuals amounted to £25 - 40 billion in 2007.
Perhaps they should also point out that healthier, more equitable societies also levy higher taxes on the wealthy. In the Scandinavian countries, basic earning inequalities similar to Britain and the US are evened out by higher taxation of the wealthy. Surprisingly for some, rates of economic growth and enterprise have not suffered. So it has to be spelled out: attaining a more equal and healthy society will mean increasing tax on the wealthy.

Particularly tragic is the ambiguous position of the New Labour party. Until the advent of Tony Blair, the party was guided by broadly defined Christian social market values. With the invention of New Labour, some of the more outdated baggage like Clause Four of the constitution, advocating universal nationalisation, was sensibly dumped. At first, many believed that Blair was a new JFK, and that a hopeful new era was dawning. But then, in a desperate desire to demonstrate that the party was business friendly, top New Labour figures seemed to dump their ethical compasses and espouse free-market dogma with great enthusiasm. Behind this is also a suspicion that the leadership under Blair was unhealthily attracted by wealth and power. (See unstinting admiration of America, attachment to the rich, Mandelson, Blunkett et al).

Gordon Brown's tragic dilemma

New premier Gordon Brown seems to be tragically speared on the horns of a horrible dilemma. On the one horn, beliefs about a fair society coming from his upbringing - on the other, faith in the efficacy of free markets.
The result seems to be that he appears almost schizophrenic at times, split between a desire to promote the free market and to have a just society. He seems not to be able to face up to the fact that inequality and social deprivation are in large measure products of gross inequalities spawned by inadequately managed and regulated markets.
It is like having half a moral compass - he can deprecate the immorality of an unequal society, but dares not apply the same judgments to its causes in the free market. Alas! Half a compass is as useless for navigating in a complex and turbulent world as no compass at all, so he goes round in aimless circles. Perhaps this is why he is constantly accused of timidity and dithering. And nobody else in the main political parties seems willing to think objectively or act decisively about inequality and the massive appropriation of wealth and systematic tax evasion by those at the top of the economic scale.
We would conclude that the relatively untrammelled application of free-market dogma is at the root of this amoral state of affairs, and until we regain a sense of ethical perspective, matters will only worsen.

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