This book by Gerry O’Hanlon SJ gives a view of the recession from the point of view of Catholic Social Teaching and argues for the need for a new, more socially responsible, economic paradigm.
pp 56. Jesuit Centre for Faith and Justice and Messenger Publications. To purchase this book online go to www.messenger.ie/j/page562
CONTENTS
Introduction
1. Signs of the times
2. Biblical inspiration: the city upon the hill
– The meaning of the biblical narrative
– ‘Where there is no vision, the people perish’
3. Catholic social teaching
4. A closer look at our current situation
– Ways forward
– Regulation – and?
– Roy Keane and a humane model of economic development
– Global dimension
– Leading us into the future
5. God Matters
– God
– Jesus Christ
– The life of grace
– Hope
Conclusion
References
‘With that kind of talk
you may as well
close down the
whole country
altogether’
– angry public sector worker, in response to reported comment in January 2009 by Turlough O’Sullivan, Director General of IBEC (Irish Business and Employers Confederation), that since 10-20 per cent of private sector workers had lost their jobs, it would be right that the same percentage of public workers should lose their jobs as well.
INTRODUCTION
We live in worrying times, and the mood is ugly. In Ireland our financial and economic situation has deteriorated rapidly. Our economy is in recession, unemployment is rising sharply, there has been a severe deterioration in the state of our public finances and we are faced with unpalatable cut-backs in services. The spectre of mass emigration looms. There is a new caution about spending and planning for the future. Many of us are still somewhat bewildered and almost in denial about our plight, but increasingly one can sense a growing public and private discontent, anger, anxiety, even fear and desperation. The phenomenon of a vocal group of elderly people, protesting loudly in a Dublin city-centre church against medical card cut-backs, was an early, potent symbol of the tsunami-like shock which Ireland is experiencing.
All this is a reflection of what is happening on a larger scale world-wide. We are learning a new language: the ‘credit crunch’ in the USA has resulted in panic on the global financial markets, widespread economic slow-down and even recession, with civil unrest in places. As countries battle for their own economic survival, more fundamental global issues such as the UN Millennium Development Goals, including the need for environmental sustainability, are in danger of being put on the back burner.
What is going on? Often it seems that the complexity and rapidity of our changed situation are baffling even to those we imagined to be the experts – Wall Street insiders, for example, have been heard to admit that they simply did not understand quite what was going on in some of the mystifying, labyrinthine transactions which have characterised the workings of stock markets in recent years.
However, an intelligent and coordinated response is urgent and important. Apart from the many millions of ordinary lives that are being adversely affected, history teaches us that economic instability is fertile ground for political totalitarianism. The Great Depression in the late 1920s and 30s undoubtedly contributed to the rise of Hitler and Fascism. How are we to address our current situation in a way that will create the kind of economic stability capable of fostering a just peace’?
1. SIGNS OF THE TIMES
It was somewhat accidental that the group of elderly protesters in Dublin met in a church. And, in truth, even many good Christians might be puzzled that there could be a fruitful connection between their religious faith and the current financial woes of our world. What, after all, does the Blessed Trinity have to do with the likes of fiscal stimulus packages? The more classical form of this query was expressed back in the third century by Tertullian when he asked: ‘What has Athens to do with Jerusalem?’
The Bishops of the Second Vatican Council (1962-5) would have been in no doubt about the answer. They boldly proclaimed that ‘the joys and the hopes, the griefs and the anxieties of the people of this age, especially those who are poor or in any way afflicted, these too are the joys and hopes, the griefs and anxieties of the follower of Christ'(Gaudium et Spes, Pastoral Constitution on the Church in the Modern World, 1).
They went on to express the positive contribution that Christians and the Church can make to contemporary issues under the rubric of ‘scrutinising the signs of the times’ (GS 4) and interpreting them in the light of the Gospel. Some important principles were articulated to guide this interpretation: in particular, respect for the legitimate autonomy of earthly affairs (including the socio-economic, political and cultural orders – GS 36, 59).
This will mean being attentive to the intelligibility and laws of particular disciplines, even while recognising that these same laws and intelligibility have their source and goal in the mystery that we call God, creator of all that is (GS 36). And so, with respect to economic activity, for example, its ‘fundamental purpose … must not be profit or domination … rather it must be service … of the whole person … viewed in terms of their material needs and the demands of their intellectual, moral, spiritual and religious life … consequently, economic activity is to be carried out by its own methods and laws but within the limits of morality, so that God’s plan for humankind can be realised’ (GS 64). There is, then, respect for the independence of economics, but this is a relative rather than an absolute independence.
This kind of tightrope way of proceeding, by means of which we respect the search for economic intelligibility and yet keep it linked to the bigger picture of human well-being and flourishing, is at the heart of the Christian contribution to our present dilemma.
A second important principle the Council asserts is that while Christians look for final solutions to the ‘new earth and new heaven’ that are post-historical, still ‘the expectation of a new earth must not weaken but rather stimulate our concern for cultivating this one’ (GS 39, 43). The Christian message will shed light on how this concern may take practical shape. However, Christians must not expect a detailed policy blueprint from this message, but rather must expect that, even among themselves, they may disagree at times on what concrete measures are to be implemented (GS 43).
The Council is clearly against the kind of sacred/secular dualism which would assert either that economics on its own has all the answers, or that religion should retreat in splendid isolation to the sacristy or should preach from on high without serious dialogue with economics. Instead, under the rubric of ‘reading the signs of the times’, it is passionately convinced of the positive difference that Christianity can make to all our human dilemmas.
Just now it would seem that our world could do with all the help that it can get. How might we read the signs of our own times through Christian lens, in a way that might aid us to plot our way out of our current crisis with intelligence and hope?
2. BIBLICAL INSPIRATION: THE CITY UPON THE HILL
In 1630, on board the flagship Arbella, off the coast of Massachusetts, John Winthrop addressed his fellow Puritans as follows: ‘We shall be as a city upon a hill – the eyes of all people are upon us’. This biblically-inspired notion of being God’s Chosen People, destined to enter the Promised Land, was shared by Winthrop’s co-religionists and co-founders of what we now call the United States of America, the Separatists or Pilgrim Fathers and Mothers. It is a notion which has resonated throughout the history of the United States and finds an echo in the rhetoric of Martin Luther King and President Barack Obama.
It goes back, of course, to the belief of the Israelites, expressed through the Old or Hebrew Testament, that God had called them in a special way and had set up a Covenant or Agreement with them. This Covenant involved God’s promise of fidelity to the People, and their commitment to obey God’s Law (given principally
to Moses in the form of the Commandments). It was an agreement which covered every aspect of life, not just some imagined ‘holy’, in the sense of private, domain.
The Covenant was central to the understanding of the group concerning all the major events of its history – its first exodus and sojourn in Palestine (Canaan)
in the proto-historical times of Abraham (c. 2000 BC); its first Exile in Egypt and its Exodus under Moses (c. 1250); its arrival after the Desert experience in
the Promised Land of Palestine under Joshua (c. 1200); its rule by Judges and then by Kings; its civil war between North (Israel) and South (Judah); its second
Exile in Babylon in 598 and return in 538; its transition from the Desert Ark of the Covenant and the Ten Commandments to the establishment of Jerusalem and the
Temple as the Royal and Holy City, funded by a taxation system often experienced as oppressive.
It must not be imagined that this group narrative, part myth and part history, reflected a seamless evolution of a society in line with a neat conceptual framework shared by all. Rather it involved huge, disruptive and incomplete transitions from a nomadic to a more settled agricultural to a mixed urban-rural lifestyle; it involved skirmishes and wars with neigbouring powers like Egypt, Assyria, Babylon, Persia, the Greeks and Romans; it involved assimilation with all these groups and internal divisions about the nature of their own group. It was, in short, as complex and differentiated as the founding narrative and ongoing history of any modern nation-state, not least the founding of our own state in Ireland, emerging from that fraught and complicated, centuries-old relationship with Britain and now trying to chart its way through the troubled waters of today.
The meaning of the biblical narrative
But of course the Hebrew narrative is not simply an historical account, with all the geo-political, socio-economic and cultural factors which such an account would rightly include. It is also, and primarily, an account of faith, redolent of this nation and people’s search for meaning.
Central to this account of faith is their belief that God was involved in their history. They understood themselves to have this Covenant with God, which involved a commitment on their side to monotheism and to ethical behaviour in all areas of life, in particular to social justice. Such was God’s engagement with them in their day-to-day lives (as, for example, in liberating them from their lives of slavery in Egypt) that they came to recognise this God of the Covenant as also their Creator.
They were conscious of all the time reneging on their commitment: by turning in idolatry to the Baals on the High Places of Canaan, and, as the Prophets never
tired of admonishing them, by mistreating the poor, the widows and the orphans. Idolatry and morality were closely connected in this understanding: worship of the fertility and nature gods of Canaan involved putting creature in place of the Creator; it involved becoming a slave of created realities like money, fame, sex, political power and sin of all kind.
Yet no amount of commandments, of Law, of wise rulers seemed able to prevent this constant turning away from God into immorality, the rejection of the liberation of the God of Exodus and the return to the Exile of sin so characteristic of the narrative. In response, there developed a hope for a Messiah, for a Messianic age in which: ‘I will make a new covenant with the House of Israel and the House of Judah … I will put my law within them, and I will write it upon their hearts; and I will be their God, and they shall be my people’ (Jer 31: 31-34).
And so Second Isaiah can say towards the end of the exile in Babylon: ‘Remember not the former things, nor consider the things of old. Behold I am doing a new thing; now it springs forth, do you not perceive it?’ (Is, 43, 18-19), and again, `From this time forth I make you hear new things, hidden things which you have not known’ (Is, 48, 6). The Israelites are being advised not to wallow in the past glories of Liberation/Exodus, but to hope for a new creation, a new redemption, a definitive breakthrough, which they understood to be associated with the Messiah and which would lay less stress on the externalities of Law and more on the inner heart and spirit spoken of by Jeremiah. It is in this context too that the Prophet Joel can say: ‘And it shall come to pass afterward, that I will pour out my spirit on all flesh; your sons and your daughters shall prophesy, your old men shall dream dreams, and your young men shall see visions’ (Joel, 2, 28-29).
It is the Christian belief that all this longing for a new Covenant, a definitive breakthrough, the pouring out of God’s holy spirit are fulfilled and accomplished in the coming of Jesus Christ, his life, death and resurrection, his pouring out of his flesh and blood in the New Covenant that is given in the Eucharist and of his Spirit at Pentecost.
And so, just as the Jews constantly went back and forth in memory to events like Exodus and Exile in order to read the signs of their own times, Luke tells us that the two disciples on the road to Emmaus, downcast because of the death of Jesus and seemingly of their own hopes, were instructed by the apparent Stranger who met them on the road about the meaning of the past: ‘And beginning with Moses and all the prophets he interpreted to them in all the scriptures the things concerning himself … and their eyes were opened’ (Lk 24:27-31). And the Eucharistic re-membering (the term is anamnesis, and means the making of the past present in the strongest possible sense) is that New Covenant (Lk 22:19; 1Cor 11: 24-26) which unleashes a powerful energy in the world which is like the breath or spirit with which God first created the world, the breath which infuses life into Ezekiel’s dry bones, the inspiration of dreamers and visionaries, capable of overcoming all decline and sustaining all progress.
And it became clear, as had already been foreshadowed at least in God’s dealing with Israel, that this breakthrough is for all people: the Christian self-understanding involves the notion of the Church as the sacrament of salvation for all – not in the sense that all must join the Church to be saved, but rather that a central function of the Church’s visibility is to point to the truth that God wants all people to be saved, the Chosen People are now all God’s people. The perspective has widened from a partial and limited particularity to that of an inclusive universality.
“Where there is no vision, the people perish” (Proverbs, 29, 18: King James version)
When Martin Luther King cried out ‘I have a dream’, when Barack Obama proclaimed repeatedly, during his campaign and after his Presidential victory, ‘yes we can’, they were drawing in on this same biblical narrative. It is the narrative tapped into by John Winthrop for his ‘city on a hill’ speech, and subsequently by such diverse figures as John F. Kennedy, Ronald Reagan, Rudy Giuliani and Sarah Palin.
In our part of the world, we are not so used to this blending of the sacred and the secular: it can offend our notions of Church-State separation: it can raise fears of fundamentalism and right-wing political Evangelism. And it is true that the disparate range of politicians referred to obviously counsels against any univocal reading of the biblical narrative in its application to current situations.
Yet it would seem that trace-marks of this biblical story still have power to inspire our secular world, even when the source of this inspiration often goes unrecognized or unacknowledged. There is, as theologian James Harvey has suggested, a kind of ‘civic grace’ present in the most secular of cultures (1).
The point of the particular reading of the Bible presented above is precisely to show that this presumed separation or dualism between the so-called sacred and secular is not as obvious as it may appear at first glance. We have come, quite properly, to an understanding of the rightful autonomy of the secular. However, we must nuance this understanding to take account of the biblical claim that ultimately all is in God’s hands, a claim which, again, was made so abundantly clear in President Obama’s inauguration ceremony and inaugural address. We as believers do well to inquire about what practical purchase this claim may suggest.
Perhaps in what theologian Nicholas Lash calls the ‘protocols against idolatry’ which the Bible enjoins, and the concomitant pointers to morality and social justice, we may find a helpful tool in reading today’s signs of the times? Perhaps above all in the release of that Messianic hope brought about by the Jesus event we can find the energy and vision to tackle our current situation of Exile? Perhaps we can find, like the two on the road to Emmaus, that our fear and despair may be turned once again into hope?
3. CATHOLIC SOCIAL TEACHING
German Chancellor Bismarck once said that you can’t run a modern state relying solely on the teaching of the Sermon on the Mount. This brings us back to our earlier remark here about how on earth is one to link the language of the Blessed Trinity with that of fiscal stimulus packages.
In fact, consonant with the desire of Vatican II for a respectful dialogue with secular disciplines, there is a distinguished, sophisticated, if little known, tradition of Christian ethics which focuses precisely on this dialogue. Of particular relevance to our present discussion is the corpus of Catholic Social Teaching (CST). With its help we may adjust and refine the lens of the biblical story so as to provide a sharper reading of today’s signs of the times.
At the heart of CST is an anthropology which focuses on the dignity of the human person, with concomitant rights and freedoms, and understood as having an intrinsically social nature. Two important features of this anthropology contrast with what has become almost a conventional orthodoxy of our contemporary world.
First, the human person is more than ‘homo economicus’ – pace Marx, and, ironically, his contemporary neo-liberal adversaries, the goal of all economic activity is at the service of the humanum, of the individual person and of humanity in general, and is not an end in itself.
Thus, in the words of Pope John Paul II, there is a priority of labour over capital, and while the economic sphere of life is important, it is so along with other areas (the personal, the cultural, the political and so on) and in service of greater overall human flourishing.
And so a warning shot is fired across the bow of the kind of ‘savage capitalism’ (2) which, in the phrase of novelist Tom Wolfe, the Masters of the Universe tend to practise. This then affects all of us, putting the making of money at the centre of our lives and imbuing our culture with an acquisitiveness and greed which are infectious and lead all too surely to the kind of Bonfire of the Vanities which we are now experiencing. All this, to return to the biblical story, is idolatry, and its effects lead to an Exile of individuals and peoples from the home that they are meant to find in a more balanced anthropology.
Secondly, the anthropology at the heart of CST is intrinsically social in a way that values relationships at every level – interpersonal, family, civil society, and state. It values these relationships – and the structures, systems, cultures and treaties which sustain them socially and politically – as both an end in themselves and a means of human flourishing.
In this context it should be noted that the principle of the common good, central to the application of CST to human affairs, is described as ‘the sum total of social conditions which allow people, either as groups or as individuals, to reach their fulfilment more fully and more easily’ (3). I note immediately that, despite deeply-rooted fears of Liberal commentators who are suspicious of terms like the common good on the grounds that they may imply some kind of collectivist interpretation, this description holds firmly on to the notion of individual as well as group flourishing, understanding the two as intrinsically linked rather than mutually exclusive.
It should be noted that this description of the common good is both heuristic and multi-layered. By heuristic is meant that, a little like the x in algebra, it functions more as a way to discovering truth than as an already determined content: one has to engage in a search for what constitutes the common good in any given situation, a search which is guided by the description above. Similarly, there are very many different layers or horizons within which the notion of the common good operates, including the limited horizon of the socio-political and the absolute horizon of the transcendent-eschatological. Those who accept the limited good involved in the former need not necessarily – but may – also subscribe to the unlimited good of the latter. So, for example, the principle of the common good may well ground the political philosophy of a secular state, without demanding the perfection of the Gospels.
It is instructive that ethicist David Hollenbach can write, apropos the USA Bishops’ 1986 Letter on the Economy, that talk of the common good (in line with the dubbing of Catholic Social Teaching in general as ‘our best kept secret’) ‘was nearly incomprehensible to most of the people the bishops sought to address’ (4). Yet such a notion of the common good may be broadly compatible with the kind of anthropology and political philosophy generated by Socrates, Plato, and Aristotle, not to mention modern systems such as civic republicanism (5). And one notes that it is entirely consonant with the more unlimited horizon and praxis of the biblical Jesus, the stress by him on individual flourishing and integrity but always through love of neighbour, the value of community (the People), and all this rooted in the notion of the human as being in the image and likeness of that God who is both One and Three, in the mystery that we call Trinity.
But Modernity in general has not been happy with this notion of the intrinsically social nature of the human person. With the ‘turn to the subject’ in Descartes, followed by Kant’s philosophical Idealism, and the more empirically based and ultimately politically oriented approaches of Hume, Locke, Mill and Hobbes, there developed in Modern times a view of the Liberal subject as an individual for whom society was often seen as at best a nuisance, at worst an obstacle.
In this context, law becomes a matter of contract, rather than based on deeper notions of the prudential application of the values of truth and justice to a pluralist society. Freedom, highly prized, is reduced to the notion of minimal constraint or coercion, as opposed to the possibility of living the good life. Politics becomes a matter of regulating that ‘war of all against all’ (Hobbes) or even war by other means (Foucault), in which inherently mutually conflicting forces are regulated for the benefit of the individual – it is no longer the attempt to lay the political foundations for that civilisation of love of which CST speaks, in which individual and social flourishing are co-dependent and which is inclusive of all. It may well be that elements of this managerial culture were evident in some aspects of our own laudable Social Partnership experiment over the last twenty years – one thinks, for example, of some of the excessive pay increases awarded through the benchmarking process, as well as the loss of competitiveness generally in the economy.
The extreme consequence of such a world-view was articulated (in)famously by Margaret Thatcher in her ‘there is no such thing as society’ remark. And it is this kind of extreme position which is at the heart of the neo-liberal economic paradigm, so influentially proposed by Friedrich von Hayek, in which there is that explicit drive to replace the state by the free market, with a confidence way beyond that of Adam Smith that the ‘invisible hand’ of the market is best suited to promoting individual human good by means of competition and minimal legal (and no political) regulation (6).
Catholic Social Teaching rejects this extreme (albeit an extreme which, under the guise of a Social Darwinism and economic neo-liberalism, has become a dominant force in today’s world). It does so in a way which tries to persuade more moderate Liberals that their own values can best be promoted by a more holistic approach.
And so, with liberalism, CST agrees that self-interest is not necessarily a bad thing. The notion of the common good preserves the notion of individual flourishing, as indeed, of course, does the injunction of Jesus ‘to love your neighbour as yourself ‘. There is not, then, in CST some woolly kind of advocacy of a political altruism which, in line with Bismarck’s fear about the Sermon on the Mount, would amount to a naive and unmediated application of biblical stories to the complexities of modern situations.
The argument is rather that the true interest of individuals is best served when the interest of us all is served, when solidarity is practised, and we need to work at ways in which this situation is brought about. We need, too, to anchor our notions of freedom, law, society and politics in soil that is respectful of a notion of ‘the good life’ that goes beyond the external observance of rules and regulations but respects the deeper notions of justice, truth, freedom and the virtuous life.
In fact, the temptation to Social Darwinism, the survival of the fittest, the abuse of power, is always present. And because this is so, CST is emphatic that the principles of solidarity, the universal destination of goods and the preferential option for the poor must be an integral part of our understanding of the common good.
Thus, for example, it is never in the interest of individuals, no matter how wealthy they may be, that excessive inequalities exist within societies and between nations, whether these be inequalities of power or of wealth. Apart from these being an offence to that natural justice which needs to be satisfied if we are to be happy, they have the effect of increased crime, instability, even war, with concomitant negative economic consequences. Of course, as with the crisis in our environment, some may benefit in the short-term by ignoring such issues. But short-termism is short-sightedness and, as CST argues, we need to work towards a situation of sustainable economic growth, in which inequalities within and between nations are reduced and in which our environment is respected.
To get to this point will demand a more nuanced attitude to the free market: with all its advantages, it still needs appropriate political direction, and there is a role for the notion of a political economy. Otherwise, in the words of John Paul II, there is ‘the risk of an “idolatry” of the market’.’ In addition, as the Pope notes, ‘there are collective and qualitative needs that cannot be satisfied by market mechanisms” – one thinks of basic needs such as shelter, health-care, education, transport, welfare provision and so on, some or all of which in particular circumstances may fall outside market provision. There is indeed wisdom in the maxim that ‘the market is a good servant but a very bad master’ (9).
Of particular relevance to our situation of a globalised economy, CST has been speaking for some time about the need for a better form of international, institutional, political governance of the global economy, in which all, and not just the powerful, would have appropriate representation (10). One is reminded in this respect of the remark of John Palmer, commentator on EU affairs: ‘The architecture of global governance has massive gaps in its coverage’ (11).
Secular commentators have begun to take notice of the potentially constructive contribution of CST. One notes, for example, the appreciation of Will Hutton, doyen of British writers on economics, for the daring of the Vatican in asking the kind of basic questions that politicians are refusing to ask – questions such as: how can capitalism and its market-driven dynamic be made to serve the good of everyone and not just the wealthy? Writing about a conference which he attended in the Vatican in May 2008, Hutton somewhat bemusedly comments: ‘What was I doing standing in the beautiful Vatican gardens at an open-air Mass watching the green parrots swoop overhead? But there are a billion Catholics worldwide, not a trivial force for change if they can be mobilised … we stakeholders, believers in social justice and good work, make common cause with anybody we can find. And I’m delighted the Pope is one of them’ (12).
CST, in expressing the Bible story in a way that is relevant for the public affairs of today, tries to do so in a bi-lingual way that appeals to the inspiration of the Bible as a kind of deep background, but then couches its applied analysis in terms which are accessible to the ordinary canons of human reason.
As we have seen with respect to the biblical inspiration of public affairs in the United States, it is widely acknowledged that CST was extremely influential in shaping the thought of key founders of the EU and thus of the principles which inform it. In our present context it urges us to a more holistic view of the human person, which respects the importance of the economic dimension, but does not allow it to dominate. This anthropological view is integrated into a more positive approach to the notion of society and state, by means of the notion of the common good. In turn, this leads to an appreciation of the real, if limited, value of the free market; the need for appropriate political governance of the market at national and global levels in the interest of greater equality and justice, of the provision of basic needs, and of the sustainability of our environment. All this is in contrast to a liberal approach which focuses excessively on the individual, and a collectivist approach which sacrifices individual to group interest.
With this kind of sharpening of the lens afforded by the Christian story, we are in a better position to look again at our current situation and at possible ways forward. We might note, as we begin to do so, the interesting remark by Pope John Paul II, when commenting on social sin in Reconciliatio et Paenitentia (1984), that there is personal sin in taking ‘refuge in the supposed impossibility of changing the world’ (n. 16).
4. A CLOSER LOOK AT OUR CURRENT SITUATION
We have always known that heedless self-interest was bad morals;
we know now that it is bad economics.
Franklin Delano Roosevelt, Second Inaugural Address – 20 January 1937
What are the main salient features of our present crisis? First, putting it very simply, there has been a breakdown in trust and confidence globally in the financial and economic spheres, resulting from an at least partially dysfunctional financial sector and from the reality that too many of us in the co-called developed world (governments, banks, companies, private individuals) have been living beyond our means. The primary responsibility for all this rests with those who ‘have’ in our society (not, emphatically, with the poor) and disastrous consequences have followed, not just for the West, but also for the whole world and for our planet.
This ‘living beyond our means’ had its most dramatic and consequential manifestation in the sub-prime mortgage lending of banks in the USA. The loss of
mortgage confidence and trust resulting from the defaulting on these loans led to a crisis in inter-bank lending and that tightening of credit now referred to as the ‘credit crunch’. All this was exacerbated by complex and often unregulated dealings on financial markets. These involved hedge-funds, short-selling, securitisation and derivatives, including the bundling or parcelling of high-risk loans, bonds or assets into portfolios which were sold on to investors globally in a less than transparent way. All this was motivated and incentivised by short-term gains. It was driven by the desire to lend more and more in order to acquire profits and bonus payments that had little to do with the delivery of real economic performance. It has led to a massive hemorrhaging of trust and confidence.
It has seemed to the non-specialist outsider that markets have often been behaving in the smoke and mirrors manner of giant gambling casinos, with scant regard for social responsibility. And one doubts that insiders themselves were really on top of what was going on – as one commentator has put it: ‘This pace of innovation and complexity simply outstripped the capacity of boards, managements and regulators to manage their institutions and the capacity of regulators to understand and limit the risks of consumers and shareholders’ (13).
This ‘heedless self-interest’ model of infinite-growth capitalism was replicated in varying degrees world-wide, with distinctive characteristics according to particular local situations. Thus, in Ireland (14), we developed an excessive reliance on our construction sector, in an economy that was becoming increasingly uncompetitive (we were paying ourselves too much, ‘living beyond our means’). Property prices became grossly inflated and, when this ‘property bubble’ burst, our banks became exposed to bad loans, so that questions were being raised not just about their liquidity and capacity to loan, but even about their very solvency. All this was against a background of strong economic growth for well over a decade, with the welcome benefits of record employment levels and a reduction in levels of consistent poverty, but with continuing high rates of relative poverty and the squandering of opportunities to enhance public services, particularly in areas like health, education, social housing and penal reform.
Opposition parties in countries like Ireland, Britain, France and so on, tend to blame their own governments for what has happened. And there may well be at least some merit to their critique. But it is clear too that our situation is of global proportions, not least because of the emergence of economic globalisation in the recent decades. The response then will have to be both local and global. What form should it take?
Ways forward
Let me observe firstly that those of us commenting on this situation from a religious perspective may be tempted to adopt an excessively moralistic and sweeping I
approach. While there may be some temporary emotional release in fulminating about the idolatry of Golden Calves on the financial High Places of our world, even some gleeful Schadenfreude at the bewilderment of economists and politicians at what has happened, the Christian contribution calls for something more serious.
We must indeed acknowledge that our recent past was characterised by some greed, an almost giddy recklessness even (one thinks of our new wealth in Ireland). To some extent we all share responsibility for this, even if one ought to avoid any bland moral equivalence and be clear that the burden of responsibility lies particularly heavily on the shoulders of those with power, our political and economic leaders.
But the recent past was not all bad: it was, for example, wonderful that so many people in Ireland could find work, and that world-wide, particularly in India and China, there were significant reductions in the figures of those who are consistently poor.
We need then, in the language of Canadian philosopher-theologian Bernard Lonergan, to be open not just to moral but also to intellectual conversion. We need to combine our confessions of immorality with the kind of serious attention to data which will yield an understanding capable of retaining what was good in the past and building a new economic system that responds to needs in a more just and sustainable way.
Regulation – and?
It seems that some kind of consensus may be emerging, as to how this is to be done. So, there is a new openness, at least in principle, to a less laissez-faire, more socially responsible economic paradigm, in which effective, properly targeted regulation and supervision of banks, financial markets and businesses becomes part of the normative culture.
There are still some ideological neo-liberal economists and commentators who may resist this notion, who believe, like Charles Krauthammer (15) that markets should be left unregulated and that it is politics and not economics that is causing market chaos. But really, the extensive bail-out of banks in the USA and elsewhere, and the widespread introduction of Keynesian fiscal stimulus packages at the behest of financial and business interests have shattered this kind of ‘small government’ neo-orthodoxy unless, as some have noted ironically, this kind of ‘socialism’ is only for the rich, when they find themselves in need.
It will be important to get the technical details of this regulation right but also to accompany regulation with sanction. In this context I note the approach of Keith Leslie who proposes that the ‘cost of failure’ (to meet regulatory requirements) be at least as high as the cost of failing to meet profit expectations. So, for example, with regard to the regulatory framework of banks, ‘Deeming (mortgage) foreclosures or loss of savings to be prima-facie evidence of criminal misconduct by senior management would change behaviour dramatically … and the regulatory burden could be higher for businesses that operate mis-matched bonus systems that pay out before performance is delivered’ (16).
Similarly, as noted by sociologist Michael Hornsby-Smith (17), there needs to be a thoroughgoing reform of the bonus culture which invites financial traders to take undue risks. Instead, the reward system should be shifted from short-term profits to long-term performance.
There needs as well to be a review of the rules and funding mechanism of pension schemes. It is arguably unwise that these schemes are funded significantly by risky investment in equity markets, involving not just risk to the pension funds themselves but also putting pressure on businesses to opt for the maximisation of short-term profits at the expense of more long-term sustainability.
All this talk about rules and regulations points to something deeper. What Keith Leslie and so many others are proposing is more basic than simple regulation. In fact, some (Christopher Jamison) argue that in the past, at least in the financial services industry in Britain, there has been over-regulation but no ethics, a lethal combination (18). With this in mind, what is required, arguably, is not more, but better regulation, in particular as applied to the so-called ‘shadow banking system’, involving the likes of specialist investment banks and hedge funds. However, on its own regulation can be sterile and overly-bureaucratic, it can oppose creativity and flexibility, it has a heavy hand which can lead to feelings of oppression and strategies of evasion. What we need instead is a renewed understanding of ethics which does not equate it with simple rule compliance.
Just as the threat of the ‘cost of failure’ led to the widespread corporate adoption of effective safety and ethical standards over the past twenty years, so too because of our present crisis we have the opportunity to motivate people, by means of a carrot and stick approach, to achieve non-economic values that are more in harmony with the common good and with the notion that the economy is at the service of the human person and not primarily and exclusively for profit. This would involve a culture in which the ethics of virtue is operative (19) with the ethics of rules and accompanying sanctions as a kind of initial stimulus and fall-back ‘long-stop’. In other words, one goes beyond a Pollyannaish, pipe-dream aspiration for virtue by appealing not just to basic human decency, but by insisting that new values and behaviour are necessary and that if they are not implemented there is a ‘cost of failure’.
This notion of virtue would include the kind of prudence for which bankers were once proverbial. It would put an onus on all of us (not least for the sake of our planet and future generations) to develop a culture of moderation which avoids living beyond our means, akin to the mantra of Ghandi that: ‘we need to learn to live more simply, so that others can simply live’. It would involve a commitment to a justice which cannot rest easy with the scandalous inequalities which characterise our national and, above all, global situation.
It would not be the kind of prudish virtue which dis-allows the values of freedom, initiative, entrepreneurship and due profit. But it would value the kind of integrity at the heart of financial and commercial transactions that leads to that trust and confidence so necessary for an economy to flourish. We are, then, not talking about merely technical solutions and a return to ‘business as usual’: we are speaking about the opportunity given us by this present collapse to reframe the debate more radically.
We are talking, in particular, about the need to consider ‘how realistic it is to return to the previous model of consumption-led and debt-fuelled growth (20) the need, in other words, to consider seriously the limits of growth, to begin the search for sustainable models of growth. This more radical approach is singularly absent from most political and financial commentary over this period: the focus on regulation alone is insufficient, and while there may be a need for fiscal stimulus packages in the short term, we also need to query the operative assumption seemingly underlying these measures that a return to the recent past is desirable.
It will be a real challenge to conceptualise and implement this more radical approach. After all, the model we have become accustomed to – one of consumption-led and debt-fuelled growth – did produce almost full employment in many places, allowing for more inclusive participation in society. Any turn to moderation and restraint needs to take account of the value of an economy which functions sustainably for the good of all.
In this context of a search for a more radical approach it is interesting to note the observation about the role of ideas made by John Maynard Keynes, the British economist and policymaker who theorised the way out of the 1930s depression. In 1936 he wrote: ‘The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist … soon or late, it is ideas, not vested interests, which are dangerous for good or evil’ (21).
At its deepest this more radical approach involves a seismic cultural shift (Lonergan’s notion of conversion) from the dominant individualistic, utilitarian
and managerial ethos of neo-liberalism to the more inclusive ethos of the common good. But neo-liberalism was always an extreme version of the kind of liberalism world-wide that rejoices in human rights and that in countries like Britain has been to the fore in operating the welfare state. Now, with the present Sword of Damocles hanging over us due to our global economic melt-down, as well as the legally coercive measure suggested above, it may well be that many of us, Liberals and non-Liberals alike, would turn with some relief to a more humane model of economic development, respectful of our natural environment.
Roy Keane and a humane model of economic development
I remember being struck, some years ago now, when Roy Keane, still playing football then in the Premiership with Manchester United, negotiated his contract for something like 75,000 pounds sterling a week. At one level it seemed right to say: ‘Good on you, Roy’. At another level it seemed at best simply daft, at worst obscene.
More significantly, one could say the same, and a lot more, about the remuneration of the chief executives of banks and other businesses, often amounting to several millions a year, not to mention the profits of property developers.
Are we not uneasy with the brand of capitalism which allows, even encourages, the kind of egregious inequalities which we see evident in the contrast between the salaries of chief executives and those of the worker on the floor or in the office – not to mention the myriad other extreme inequalities of the system, from which the professions (one thinks in particular of the legal and medical) are not immune?
Even for the rampant hedonist it would seem that the sums of money involved in this make little sense: at a certain point what individual can use this kind of money, does it become simply a matter of making money for its own sake or, perhaps more likely, an envy or power-trip by means of which ‘keeping up with the Joneses’, ‘having more possessions than the other guy’ becomes the driver of economic activity’?
We need to search for economic models which are less prone to such aberrations. Trade unionist David Begg (22) observes that there are at least four different socially democratic models of capitalism in Europe: the Rhineland. the Anglo-Saxon, the Mediterranean and the Nordic. He notes that the Scandinavians in particular have combined healthy growth, low unemployment, rising productivity and large export surpluses with some of the lowest levels of inequality in the world.
In a 2004 study on economic equality a group of UCD academics (John Baker, Kathleen Lynch, Sara Cantillon and Judy Walsh) note that while the Nordic countries achieve one of the most equal income distributions within the OECD by means of progressive taxation and extensive social welfare programmes, Japan has taken a different route (22). ‘With its brand of ‘corporate welfarism’ public policy has been directed at closing two gaps – ‘the gap between high and low wages in different firms and industries, and the gap between economic growth and wage growth, i.e. between national economic prosperity and individual well-being’ (23).
In this scenario public policy ‘promotes equity in terms of wages and working conditions both within firms and between larger firms and their smaller counterparts across industries. The primary mechanism employed in relation to equity in the wage structure is the flattening of payment scales within and across firms so that the variation in pre-tax income is relatively low (24). Of course, the Japanese economy has had its own problems over an extended period now: it would be interesting to discover if any of these problems have to do with this ‘corporate welfarism’ and the drive to reduce inequality.
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