Economics: The Moral Dimension

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In writing about economics as one of five key factors that are determining what our grandchildren can expect in their future, I have focused on conceptual failures in traditional economics that together have put global civilization on a non-sustainable path.  We have looked at the consequences of following the illogical notion that economies can expand forever along an exponential growth curve.  We have examined the difference between growth as quantitative expansion and development as qualitative improvement.  We have seen that sustainable development needs to be guided by the concept of prosperity rather than economic growth.  And finally, we have examined the flaws in the money system that drive people into behaviour that keeps adding to the problem of non-sustainability.

Throughout, I have argued that all of the conceptual errors can be corrected and replaced with new guiding principles that would serve humanity much better.  Many people are writing about this, and the evidence is mounting that we are now into critical times for making necessary changes.  Yet, at the end of the day the changes in these core conceptual failures are not made.  So we must ask—why?  Do our leaders just have an unconscious death wish for themselves and society?  Or is there another dimension to the problem that we have not considered?

The answer, I believe, is yes.  There is another dimension.  It’s as old as human society.  It has been present as an influencing factor since the beginning of tribal relationships.  It goes by various labels, such as values, ethics, morals or principles.  It is what we can call the moral dimension of human relationships.

In this post I will introduce several new books that speak to this moral dimension in different ways—in some cases explicitly by calling it for what it is, and describing the consequences of ignoring it; in other cases implicitly, by describing behaviour that is a self-interested response to conditions caused by ignoring the moral dimension.

Critique from an Unlikely Source

In the first camp comes a book from an unlikely source given its topic—the moral failure of Western style capitalism.  The book is Realeconomik: The Hidden Cause of the Great Recession (And How to Avert the Next One) (2011).  The author is not a moral critic from the West but rather a Russian politician and economist, Grigory Yavlinsky.  He is currently a professor of economics at the Higher School of Economics at the National Research Institute in Moscow.  As deputy prime minister of Russia in 1990, he wrote the first Russian economic program for transition to a free-market economy.

In his 2011 critique Yavlinsky’s focus is on the financial crisis of 2007-2009 and the period he calls the Great Recession of the early 21st century.  The central idea of his book is that the crisis was caused (and continues) because “at the core, modern capitalism is concerned with money and power, not ideals, morals or principles.”  He uses the word “Realeconomik” as a pejorative term in the world of economics to describe behaviour grounded in cynicism, coercion and amorality—just as the term “Realpolitik” is used to describe such behaviour in the world of politics.

Yavlinsky says that “the underlying premise of this book is that the nature of the Great Recession is not only economic.”  It goes deeper, he says, to issues of individual and social values, moral guidance and laxity in public control that developed over several decades since the 1950s.  His premise is that “there exists a code of simple and well-known, almost universal, informal rules of behaviour.”  Neglect of these rules in the world of politics and business leads to serious deficiencies in how the economic sector operates.  His impulse to write his book and share his concerns stems not only from his research, “but also from the daily experiences of mixing with people who consider the relation of politics and business to morality an issue unworthy of serious consideration.”  With such people in charge and exerting powerful influence over the fortunes of countless millions of others, we indeed need to be concerned and pay attention to an insider’s perspectives of what is going on and what can be done to change it.

Yavlinsky makes it clear that he is using the word morality, “not in the simple sense of personal moral qualities or ethical standards, but rather in the sense of the guiding principles by which a society as a whole is governed. . . One person’s personal greed poses little threat to a culture, but a society or government ruled by greed, which privileges self-interest as a natural and universal phenomenon, is the focus of my concern.”

The Underlying Causes of the Financial Crisis

In addressing the 2007-2009 financial crisis specifically, Yavlinsky asserts that there were underlying causes that enabled the specific aberrations that brought about the far-reaching impacts on economies around the world.  He cites these underlying causes as “complacency, self-deception, disregard for public interests, and in many cases open deceit and fraud on the part of both market players and regulators.”  His point is that “the recession was largely brought about by irresponsible actions on the part of those entrusted to keep the financial sector in order.”

The larger question we must ask ourselves is, What is going on in our Western capitalistic societies that would allow such large scale moral laxity to be entrenched not only in the financial sector itself, but also in those whose role it is to regulate the sector?

Yavlinsky addresses this larger question when he says that “the challenges for an economy arise not from individual vices or weaknesses, which are natural and eternal, but from public attitudes and reactions which may channel individual behaviour into completely different directions.”  The fact that moral failure is still not considered the essential cause of the widespread shocks to modern capitalism is an indication that society at large is prepared “to tolerate incompetence, negligence of duty, and outright deceit.”  This is the issue that troubles Yavlinsky most—and should trouble all of us—because it signals that lessons have not been learned and guarantees a repeat performance some time in the future.  The urgent need is for public outrage and a demand for repudiation of Realeconomik that is now endemic in capitalist society.

Yavlinsky argues that Realeconomik represents a dismissal of the Protestant work ethic that brought in the industrial revolution by promoting “work, care, frugality in consumption and honesty in dealings.”  The fundamental principles on which successful economies operated were “individual honesty, self-discipline, recognition of labor as the highest value, consideration of the collective and public interest, concern for other individuals, and the promotion of thrift and work for the good of future generations.”  In contrast to these principles Realeconomik represents “behavioral influences we term vices, which unfailingly include, irrespective of the specific cultural background, falsehood, greed, hypocrisy, deceit, indolence, and an unabashed passion for consumption.”

That these kinds of failures are now endemic is indicated, according to Yavlinsky, by the fact that the governing authorities were unable to control the downturn in 2007-2009 in a timely way.  They failed “to react to the evident increase in risks and problems threatening the economy, which had been observed for a long time preceding the acute phase of the financial crisis.”  Such failure, says Yavlinsky, was incomprehensible and points “to a failure of morality [rather] than to a shortage of data or professionalism in those responsible for preventing imbalances and promoting stability.”  He goes on to say that “the degree of complacency displayed by regulators in the years preceding the crisis suggested that public attitudes towards their activities had become too lax reflecting at least in part a general moral laxity in the society characteristic of a post-Cold War relaxation of self-discipline in the West.”  The general tenor of the time was reflected in comments like, “After all, everyone was doing it” and “We’ll fix it later!”

Yavlinsky’s final point is as penetrating as it is sobering: “There is a serious problem with the moral attitude of society if that society has become tolerant of frauds and crooks who perceive the thrust of social isolation as nothing more than empty words.”  The very foundation of democracy is threatened as citizens become increasingly indifferent to what is going on all around them.  We are already seeing this in the West as people become less engaged in the political process.  Yavlinsky’s warnings and call to action are clear:

“The next five years will require a more rigorous re-examination of economics and capitalism than we have seen in the past thirty years.  But ethical policy combined with independent professional expertise could counteract cynicism and restore the values of Western civilization as the driving force of economic and social development.  It is the best, the safest investment we can make in our future.”

But What If the Moral Crisis Is Even More Deeply Rooted?

Grigory Yavlinsky is one voice raising a cry against moral laxity in the body economic and politic. He is by no means alone, and compared to some his critique is mild.  In America, Chris Hedges is one who sees his home country sliding into inescapable economic, political and moral collapse.

In his 2009 lament for his nation, Empire of Illusion, Hedges asserts that “the cult of self” that dominates the cultural landscape in America is a deep rooted source of malaise.  Acquiring fame and wealth are seen as the highest values, and, once there, how you made it is irrelevant.  “It is this perverted ethic,” says Hedges, “that gave us Wall Street bankers and investment houses that wilfully trashed the nation’s economy, stole money from tens of millions of small shareholders who had bought stock in these corporations for retirement or college.  The heads of these corporations, like the winners on a reality television program who lied and manipulated others to succeed, walked away with hundreds of millions of dollars in bonuses and compensation.”

Hedges, who is a Pulitzer Prize winning author and widely respected columnist, sees in America “a populace deprived of the ability to separate lies from truth, that has become heritage to the fictional semblance of reality put forth by pseudo-events.”  In short, Americans are living in illusion and ignoring the signs of impending disaster.  “Blind faith in illusion is our culture’s secular version of being born again.  These illusions assure us that happiness and success is our birthright.”

The happiness and success Hedges is talking about are intrinsically connected to a dominant role on the world stage for America, but Hedges does not see any reason why Americans should believe they can recover from their current slide into a pale semblance of what their country once represented to the world.   He is no admirer of those who should be the best hope for the future—the leaders.  “Our elites—the ones in Congress, the ones on Wall Street, and the ones being produced at prestigious universities and business schools—do not have the capacity to fix our financial mess.  Indeed, they will make it worse.  They have no concept, thanks to the education they have received, of how to replace a failed system with a new one.”

In his criticism, Hedges delivers a polemic that echoes several of the themes I have raised in earlier posts, but in much stronger language: “Our collapse is more than an economic and political collapse.  It is a crisis of faith.  The capitalist ideology of unlimited growth has failed. It did not take into account the massive depletion of the world’s resources, from fossil fuels to clean water, to fish stocks, to soil erosion, as well as over-population, global warming, and climate change.”  His list of failures of current capitalism goes on and on: “huge unregulated flows of capital,” “stock and housing and financial bubbles,” “unchecked greed,” “empowerment of an oligarchic class,” “impoverishment of workers,” “unrestrained credit binges”—all “consequences of a failed ideology [that] conspire to bring us down. . . We let the market rule.  Now we are paying for it.”

Sadly, Hedges sees no reason to hope that government can step up to the challenges it faces: “The government—the only institution citizens have that is big enough and powerful enough to protect their rights—is becoming weaker, more anemic, and increasingly unable to help the mass of Americans who are embarking on a period of deprivation and suffering unseen in the country since the 1930s.”

Is there any reason for Americans to be hopeful?  Not much, according to Hedges, if by hope one means recovering what once was.  “The earth is strewn with the ruins of powerful civilizations that decayed. . . They all, at a certain point, were taken over by a bankrupt and corrupt elite. . . These empires died morally.”  The clear implication from Hedges’ book is that America is on the way to join them.

In what seems like a token acknowledgement of something to believe in, Hedges introduces in the last three pages of his book an ill-defined concept of love as the quality that will endure as America goes through its inevitable contraction and pain: “Love constantly rises up to remind a wayward society of what is real and what is illusion.  Love will endure, even if it appears darkness has swallowed us all, to triumph over the wreckage that remains.”

A Better World Is Possible

Well, after all that, one might ask if there is not something more positive to believe in.  Bruce Nixon asserts there is.  In A Better World Is Possible: What Needs to Be Done and How We Can Make It Happen (2011) he pulls no punches on how serious the problems are that humanity faces, but then offers inspirational advice on how to make things better.

“What has happened over recent decades is an outrage,” says Nixon. “Yet we allowed it.  Change rarely comes from within a system.  It comes from outside.  That has to be us.  The two key arguments of this book are: The whole global system has to be transformed to serve everyone, everywhere.  We, ordinary people, need to turn our anger into effective action to bring about radical change. . . There are alternatives to this unsustainable, unjust system fueled by debt money and war.  We could be at the beginning of a new age in which we cherish the Earth’s resources and diversity, an age of sustainability, fairness, economic justice and peace. . . We certainly cannot leave it to the politicians.  It depends on every one of us, 7 billion people using our power. . . All of us have to get involved in politics. The purpose of this book is to help create the mass movement to prevent catastrophic climate change, save our planet Earth, create a sustainable and just global economic system, and put an end to war.”

Nixon clearly lays the blame for the world’s slide into a non-sustainable decline at the doorstep of a failed system of economics.  Quoting Joseph Stiglitz from an article in Vanity Fair in January 2009, he says: “The truth is most of the individual mistakes boil down to just one: a belief that markets are self-adjusting and the role of government should be minimal.”  From there Nixon outlines most of the other problems and solutions that have been described in previous posts in this blog.

But his unwavering message to his readers is to get involved—get involved in bringing in a paradigm shift that will reform democracy, end the destruction of the ecosystem, embrace prosperity without growth, and “create a new identity for ourselves, not based on power and wealth but living well and being stewards and servant leaders.”

The key strategies he advocates are to act locally to strengthen communities and not allow local governments to destroy neighbourhoods; and to act globally by lobbying government and global institutions and corporations and insist they change.  People have to self-organize and engage in massive education and awareness-raising about the priority issues facing all of humanity.  Be strategic, he urges, and focus on the issues you are most passionate about where you believe you can make the biggest difference.

A Range of Perspectives

So far in this post about the moral dimension in economics we have ranged over wide territory.  We began with Yavlinsky’s focused criticism of moral laxity in the general population in the West that has allowed financial operatives and those who regulate them to abuse their powers at great cost to everyone except themselves.  We heard Chris Hedges lament about America’s decline in the grip of illusions that lead them to believe that somehow former glory will return while the populace does little to face up to the hard truths about what is at the root of their problems.  And we have heard Bruce Nixon’s call for a populist resurgence of people power, energized by a moral certainly that a better world is possible by pursuing principles of fairness and justice and recognition of the need to live within environmental limits.

A Shrinking Global Pie

However, in the world in which we now live and in which our grandchildren will have to make their way as best they can, context is everything.  And the context is that there is a shrinking global pie to meet all the aspirations reaching for it.  How this is managed in the years ahead will pose the greatest of moral challenges, and underlines the importance of coming to grips with the issues raised by the authors reviewed above.

Two new books speak directly to the reality of a finite resource base to meet the demands of the world’s nations in the 21st century.  One is Dambisa Moyo’s provocative title, Winner Take All: China’s Race for Resources and What It Means for the Rest of the World (2012).  The second is by Fred Pearce: The Land Grabbers: The New Fight over Who Owns the Earth (2012).

Moyo describes how China is positioning itself for coming resource shortages by purchases and agreements around the world so that it will be able to continue its drive for economic growth, which is transforming the lives of hundreds of millions of its people from abject poverty to economic standards that rival the West.  Moyo asserts that of all the world’s great powers China is the only one that “has focused its economic and political strategy on anticipating the considerable challenges presented by a resource-scarce future.”  So Winner Take All, as well as describing China’s initiative in this matter, is also “a clarion call to the rest of the world, which remains highly ill prepared for the challenges of resource scarcity and the evolving dynamics around China’s central role.”

In the second book, Fred Pearce describes how the world as a whole is proceeding in a kind of “wild west” fashion to grab for resources: “Soaring grain prices and fears about future food supplies are triggering a global land grab.  Gulf sheiks, Chinese state corporations, Wall Street speculators, Russian oligarchs, Indian microchip billionaires, doomsday fatalists, Midwestern missionaries, and City of London hedge-fund slickers are scouring the globe for cheap land to feed their people, their bottom lines, or their consciences.  Chunks of land the size of small countries are exchanging hands for a song. . . It’s not all bad, but it all merits attention.  And that is the purpose of this book.”

Pearce asserts that the “land grabbing” has mostly to do with the ambitions of agribusiness for industrial-scale farming.  On the moral side, he asserts that we should “be angered by the appalling injustice of people having their ancestral land pulled from beneath their feet.”  He goes on to say that “over the next few decades I believe land grabbing will matter more to more of the planet’s people, even than climate change.  The new land rush looks increasingly like a final enclosure of the world’s wild places, a last roundup on the global commons.”

Both Moyo and Pearce see the next few decades as critical for the world’s peoples and their leaders to come to terms with how they are going to live together on a resource-scarce planet.  Moral laxity and the “cult of self” will in no way measure up to this challenge.  I will leave the last word on this matter to Moyo: “We find ourselves on earth at a unique time with the extraordinary challenge of managing and navigating the headwinds of commodity shortages that the world faces over the next two decades.  At present we are ill prepared to contend with this eventuality, yet the challenges we face go beyond our living standards to the survival of the planet as we know it.  This fight is about life or death.”

Competing Priorities

Just how hard it’s going to be for the world’s nations to find their way through a world of competing priorities is illustrated by one last book I will reference in this post.  Paul Krugman is a prestigious American economist, winner of the 2008 Nobel Prize in Economics.  He is passionately concerned about the stagnant economy of his country, just outside the technical definition of recession, and in other ways gripped by human depression—depression of spirit as much as anything else.  In a tone of desperate appeal to American leadership Krugman published earlier this year (2012) a small book called End This Depression Now.

Krugman sees as “a moral imperative” the need to enact policies that would address the persistent high unemployment rate in America since 2008.  “Tens of millions of our fellow citizens are suffering vast hardship, the future prospects of today’s young people are being eroded with each passing month—and all of it is unnecessary.”

It is unnecessary, Krugman believes, because the policy solutions are widely available: It’s time “to step on the gas pedal, not take our foot off it.”  Pour in billions of dollars of government stimulus to get things moving and not worry about the ballooning US debt.  “We won’t even have to pay off the debt; all we’ll have to do is pay enough of the interest on the debt so that the debt grows significantly more slowly than the economy.”

The thinking behind this line of economic reasoning is all too obvious and conventional: Everything will be fine as long as you keep expanding the economy—and when you’re talking about the American economy, that’s one big expansion.

But here’s the rub.  The Earth’s resources are finite.  The point about the two previous books I reviewed, Winner Take All and TheLand Grabbers, is that nations are already running into resource shortages and are jockeying for positions in a resource-scarce future, with China being the most proactive for its own self-interest.  What makes anyone think these huge nations can expand their economies indefinitely in a finite world that is already in overshoot in terms of meeting human activity?

Imagine this.  The great American economy cranked up again, running full bore along with China’s surging growth and the economic drive of Brazil, Russia, India, South Africa and other emerging economies, with the older industrialized economies of Europe, Australia, Canada, etc. trying not to fall behind, while the rest of the world strives to do the best it can—all seeking to expand into the open end of the Earth’s resource funnel that gets narrower and narrower the further we go into the future.  Business as usual because no country can figure out how to do it differently, even though everyone who thinks about it knows the situation is impossible and not sustainable.

Take a look at this picture.

The Funnel of Changed Expectations

I show the reality of what I am talking about in the following illustration.006

The economies of the world’s nations are shown as five balloons at the mouth of a funnel that represents the earth’s capacity to absorb the increasing human activity on the planet. The five groups are the ones I mentioned above: the USA; China; OECD (Organization forEconomic Development) countries (less the USA) like Europe, Canada, Australia, etc.; BRISE  (Brazil, Russia, India, South Africa and other emerging economies); and ROW (the rest of the world).  The mantra of leadership in all of these nations is the same: the need to continuously expand the economy by using energy and resources so that people are employed and the material standard of living is either maintained (if already at a high level) or improved (if at a lower level).

The illustration shows what happens as we go forward over the next forty years from 2012 to 2052.  As all of these economies seek to go through various iterations of expansion, things begin to get very crowded in the funnel as we go into the future.  The economies increasingly bump into each other and a lot of squeezing becomes the order of the day. 

Here we have entered the era of changed expectations as it becomes very evident to all that old theories of economic growth don’t work in a full world.  Remember that capitalism was invented in the 18th century when the world was essentially empty.  Not so in the 21st century.  How our grandchildren will manage in a world of such changed expectations needs to be at the forefront of thinking now.  Don’t you think if you saw yourself heading full speed at a brick wall you would take your foot off the accelerator and turn the steering wheel?  Winner take all, land grabbing, and reckless attempts to spend the way forward will only make a bad collision inevitable.  Moral laxity about greed and corruption and the pursuit of one’s own self-interest will be certain recipes for human misery.

The moral dimension for how to live well in a crowded multi-everything world is of utmost importance.  We must strive to ensure that voices for sanity, restraint, empathy, and cooperation can be raised loud enough to be heard so that the noblest, worthiest aspects of human potential can be realized.  This, surely, is the highest possible goal for which to strive.

The End of Economics

On that note I come to the end of my summary of Economics as a driving force of human destiny.  It has not been an easy journey, and we are left with the inescapable conclusion that fundamental reform is not only necessary, but will be forced on all of us by the physical constraints that lie ahead.

How comfortable a new reality is going to be will depend very much on how well we prepare for it.  What factors we must consider and what strategies will serve us best will be foremost in mind as I move on to the other three Es of human destiny: Ecology, Empathy and Enterprise.

 I look forward to sharing the continuing journey with you.

 

 

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