This post comes from a number of inspirations provocations. First Duncan responded to Open Left’s call for a debate on the Future of Capitalism. His view was, basically, that finance should no longer be the Master but the Servant of industry. There will be more to come from him, so watch that space. Duncan knows his stuff, it will be worth it, and ought at least to explain how we can bring more effective capital to bear on an underperforming economy.
But then Ken Costa took up a valuable piece of real estate at the Financial Times in order to call for the markets to be ‘tamed’ so as to make capitalism ‘ethical’. He, too, called for ‘servant’ not ‘master’ and filled his column with fine words like:
We became identified with the market and lost sight of its real purpose: to enable us to fulfil a duty owed by virtue of a shared humanity to the wider community. Financiers created credit out of nothing but eschewed the responsibility of the creator.
Who is this ‘we’? The Costas? Speak for yourself. What does it mean to say that ‘the real purpose of the market is to fulfil a duty to the wider community’? When I buy a flower, or an iPod, or some cheese or a gilt or a house, what the hell is the duty to the wider community? To make sure that the iPod or Cheese was not too carboniferous?
And what is this thing about Finance being Master? In what sense? As far as I can see, the problem over 2000-2007 is that it was giving away free funds to anyone who came asking for it, like a cheap tart, not a Master. The real masters of my world – Google, Apple, the BBC – have no real need of finance. I think people are getting too excited by the colourful language.
There has never been such a thwacking of abstract straw men as can be found in the dreadful, preachy and wholly meaningless column that Ken Costa forced on the very busy and important people who read the FT, and he should be ashamed.
Now, I am tainted by some of the Oxford analytical tradition in philosophy, remotely influenced by Alfred Ayer and logical positivism. It has no doubt been utterly disproved by some other philosophy, notably later Wittgenstein. But at the core of the movement is some very justified irritation with the metaphysical nonsense that is frequently spouted by people clashing their abstract nouns together. Costa does this in spades when he calls on a Market to be Moral.
Because as far as I can see, it would be impossible to discern a moral market from an immoral one. It’s just a set of exchanges between humans. What makes one moral and other immoral? Perhaps in an immoral market, the participants ghoulishly rub their hands together, snicker wickedly, and spend whatever they make on baby seal purses, whilst the moral market sees the participants smiling sympathetically at one another and pledging 10% of their proceeds to developing a Green Donkey sanctuary. Or something.
Tell us more Ken:
The task we face is to recover that discourse, to rediscover the moral spirit of capitalism so that it best serves all people
Any clearer now? No, thought not.
The excellent and clear Tom Papworth, arguing with me about macro-whatever on a LibDemVoice post, points out one illustration of inappropriate moral language for plain old transactions:
Actually, in my experience it is usually the lender who is condemned as the usurer and the borrower as a victim of circumstances. The sooner we accept that lending and borrowing is just a transaction. like selling and buying, the better
My previous point had been that savers were portrayed by some political types as “innocent victims”, and borrowers as feckless. Which is (a) meaningless – why is foregoing consumption necessarily more virtuous and (b) not very useful in a demand recession. Again, I am not clear on how some extra moral language might have helped the financial markets from being f***ed in the last few years:
Over to Ken Costa to help me again:
That moral spirit is distilled in the simple principle: “Do unto others as you would have them do unto you.”
Aaaaah. Now I get it. But hold it a mo. How would that work in a market? When you transact, you normally rely on someone wanting the opposite of what you want. I am a buyer, you are a seller. It thrives on difference.
But, Ken gives us an example:
Its practical power is evident: if the purveyors of sometimes dishonest sub-prime mortgages had followed this golden rule a lot of misery would have been avoided.
Um, what? The people lending the money thought the people borrowing the money wanted it. The borrowers thought they could pay back. The buyers of the securities thought they could sell them on. They all got it wrong. What made the subprime mortgage ‘dishonest’? Its failure to have an accurate statement of the entire future path of the house prices in the prospectus? Ken, you need to help us with some practical steps:
We need to take three practical steps: example, education and engagement. Example means leaders must set the tone. Education means engendering a robust business culture in tomorrow’s leaders and establishing ethics committees in companies on a par with, say, the remuneration committee. Engagement means forging links with all the other social partners who make business possible, increasing charitable giving and tackling environmental degradation and poverty.
These are not practical steps, they are three words beginning with E. What the **** the last one has to do with the price of beans is quite beyond me. “Give more to charity and stop wrecking the environment” – what is this to do with the workings of markets? Markets are a means by which buyers and sellers come together. And what does ‘leaders must set the tone’ ‘mean? Next time Gordon Brown buys a sandwich, he should pay over the correct amount? Not swear at the shopkeeper? And does this canting busybody really think that an Ethics Committee at a company will do . . . what exactly?
“Sir, I think we have struck £100bn of oil. What shall we do?”
“Let’s ask the ethics committee . .. . ooh, they’ve emailed back. Ignore the oil, set up a basket weaving collective that gives half the profits to a donkey sanctuary”.
Seriously, this sort of meaningless drivel (a) wastes newsprint (b) makes politicians think they are doing something when all they are doing is making pleasing noises to one another and (c) annoys the living hell out of me. In an email to a friend pondering some research on this subject, I found myself writing this:
“Markets can no more have the term moral or good applied to them than can a paragraph or an argument or a set of equations or painting. Moral is a term to be applied to human intentions, markets are simply aggregates. I can understand what the Left means by it, but what they really mean is “I want X to happen: so if the market doesn’t do X (say, employ 1m miners, or deliver butter for a penny a pound) I will call it ‘immoral’.” But I find it, to put it kindly, not useful.”
Before I sign off: I had a great meeting with Shelter and loads of others on the subject of Housing taxation. yup, the Mansion tax again. The research by Tom Crawshaw is a fantastic summary of the figures you need on this subject. Unfortunately, the meeting said little about the SUPPLY of houses, without which the house prices booming all the chuffing time problem will not be solved. Again, the Land Tax came up. More on that in the future.
Freethinking Economist 
There are two wonderful things that I have noticed about these “moral capitalism”, “morality in business” and so on pontificators (they have been around all my life).
The first is that time after time they persuade people to pay for their meaningless phrases. To my mind this is conclusive evidence that you can fool some of the people time after time after time; even if not all the time.
The second is that they never notice that there is a simple moral form of capitalism that has been quietly succeeding for centuries. Its’ moral rule is to not enter into a transaction if you do not judge there is a benefit in the deal for the other party. It is practiced by individuals, and by a number of minority religious groupings (e.g. the Quakers). The explanation in economic theory is, of course, that a great deal of business is expected to be a matter of repeat transactions; and reputation as a reliable trading partner is cumulative and valuable. I have sometimes wondered if Warren Buffett consciously applies the rule.
As you can tell, my annoyance is unlimited.
I think this tendency to pontificate on markets etc without really knowing what one is on about, or even defining the terms, stems from a sense of disquiet at seeing something really difficult and important going on, and failing to grasp its details, these moralizers decide instead to try to simplify it into straightforward categories. And as you say these people somehow get top marks for being creative, thinking outside the box, etc. Whereas all they are doing is displaying their ignorance and woolly thinking.
Also: it is quite mindblowingly annoying when the moralizer acts as if this point is so original – “you know, not everything is about money, you economists don’t get that”. No, we really are that dumb, thanks … .
But there are no two ways about it. For the economy to be better aligned towards useful ends, they need to first understand how the Market works, which means from the outset
– recognising there is not a person called the Market who Does and Thinks and is Wicked
– there is not a single market
– it going up or going down doesn’t mean it ‘thinks’ X or Y
– any particular direction is not more wicked or just than any other particular direction
ON the Quaker point, David, what is your view on when someone holds a stock (say Northern Rock) and has reached a conclusion that it is very over valued. Is he being immoral in selling it – or finding someone ignorant enough to not understand? For, in my view, it is GOOD that it is sold and that the people who are discriminating benefit against the people who are not. But does it not contradict the sentiment you put in your last paragraph?
“Do under to others as you would be done unto yourself” means
(1) Don’t rip people off by concealing inside information. If you know inside information about Northern Rock, you should not trade on it. Equally, if you know your house has a crack in the wall, don’t place a bookshelf over it.
(2) it means not exploiting people with a manifestly unfair price. Taxi drivers not putting the meter on for foreigners, builders who over-charge old people or the vulnerable because they think that they can get away with it. I would add banks that lower interest rates to nothing when you are not looking, while giving much better rates to people who ask for them.
(3) Garage owners, builders etc who decide someone is unable to tell if work is needed, and so do more work than in necessary in order to charge more.
(4) Lenders who can see that a person has no hope of paying the money back, lend it anyway, and then send in the bailiffs.
(5) Not owning or trading in slaves, or purchasing slave produced products (including people who who have been trafficked)
(6) It means that if you are selling a complex product, you should take time to understand the person’s aims, rather than selling them the product with the highest commission.
(7) Not buying kidneys from people killed to order.
(8) Not selling addictive products to people who are not addicted, and supplying them to those who are without offering help to those who want to quit. It is particularly immoral to try to hook people onto addictive products so that you can make profits from them later.
You can have a different view on Northern Rock – short it by all means – so long as you are not using inside information, and so long as you are not cold-calling people to get them to invest in products that are inappropriate.
Does this help?
Very good Tim, though I would contend that those are all more meaningfully described as people being immoral, not a market being immoral.
I would also contend that although the last years might have seen some instances of such behaviour, they were mostly epiphenomenal to the problems that happened. I think that a systemic crisis can emerge from absolutely everyone acting with what they think are good intentions. Bubbles hide all sorts of poor behaviour – as do slumps – but the Archbishop and his ilk are not being particularly helpful if they think that removing the behaviour will make it all work correctly.
Furthermore, finally, referring to the Costa article, I would argue that there is no ‘return to a golden age’ available to Costa in terms of a time when capitalism DID do all these things nicely. A lot of people seem to believe that things were fairer and less abusive pre Thatcher, for example; I think this is probably rubbish, given the stories I heard in the City of the sort of practises that have gone on there for ever.
You comment is right, but still, market participants have to understand that their morality matters in how they behave. Read your Adam Smith! (ToMS rather than WoN)
yes, though i think that is a categorical imperative that is not market-specific.
More seriously, I think the major failings in 2005-8 were within institutions rather than markets. I am thinking particularly of banks, and the behaviour whereby securities that were meant to be tradeable on markets were in fact treated as such for capital gains purposes, but really stashed away on their balance sheets or in shadow banking vehicles. This was not market abuse, so much as abuse of rules in their spirit. Morality clearly matters, but what I find unhelpful is that the market itself was a peculiarly immoral/amoral sphere.
If only these securitized instruments HAD been traded properly on markets – morally or otherwise – then the mess would have been like the dotcom mess. It was the non-market behaviour that really did for us.
Dear Giles,
How might an anthropolist aid the thinking of economists on this subject?
You have asked a most significant question the answer to which is critical if we are to do wise things in the next few months.
You ask, “why is foregoing consumption necessarily more virtuous?” and to complete the ‘pair’, you might have asked, “why is bringing forward consumption (by borrowing) less virtuous?
Let’s go the whole hog: why is foregoing consumption an act of grace and borrowing a sin?
No matter how rational we think we are being in our efforts to analyse, it is impossible for us, as social beings, to keep the sacred out of the profane. That’s why we must always be very careful indeed to be aware of how social organisations work through notions of sacredness to control our behaviour.
In our society, as it operates now, we are *still* early-programmed to ‘recoil’ against debt as a ‘dangerous impurity’. Debt defiles – it’s taboo. This is why rhetoric against debt works so powerfully for those seeking to profit from assigning blame.
Freethinking is very difficult as it has to take account of and compensate for these ‘gut instincts’ which are designed as hidden persuaders to keep us supporting the status quo.
[Likewise, it is impossible to keep the sacred out of the market. Or to prevent people seeking to control us, summoning notions of the sacred to influence our behaviour around the market place. ]
On the mundane level and as you are saying here and elsewhere, it is important to have a credible plan for debt reduction and to get the timing right for its implementation. But what a chance we have to use this period as a bridge that changes the nature and role of government and the relationship citizens have to risk, protection and the State.
B
Lol @ the idea that an “ethics committee” could be of any use whatsoever.
It’s hilarious reading twits like this though. Mandeville, Hume and Smith were discussing the fucntioning of markets – and the ways in which ethical questions do and do not arise accordingly – in the 18th Century. Yet twits come along and think they can just spout about “markets” and “morals”, having a) read none of this stuff (or any that came later) and best of all b) not actually knowing what a market is and just thinking that “market” is synonymous with “banks, and capitalism, and greed, and sadness and stuff”
Idiots.
Apologies for coming back late.
The moral rule I stated – to not enter into a transaction if you do not judge there is a benefit in the deal for the other party – is derivable from ‘Do as you would be done by’. It is the market-specific impliction of that; or of my own general rule ‘Co-operate, trust and verify.’
Tim and Giles are right about Northern Rock. Where the counterparty in a transaction is the market as a whole, it is to the benefit of the market as a whole that you signal your view of the value of the shares. As Giles says, it would have been much less damaging – and more moral, I would add – if the various toxic securities had been traded in proper markets. Markets may have neither a soul to damn nor a body to kick; but as well as enabling us to be more prosperous, they are instruments that facilitate moral behaviour.
As for the Costa trepass on the FT’s vauable real estate, I share Paul Sagar’s view rather than Giles’: it is hilarious.
Yeah, to be fair, i was way too angry there. I don’t know why I’m so irritable these days – I’m having a great month, after all, and Liberals are meant to be tolerant of others’ opinions.
Perhaps it’s all the blogging. And the QE. Driving me nuts.
Ken Costa wrote that “Capitalism has slipped its moral moorings.” I disagree. Capitalistic environments have always been a feeding ground for the greedy who place their ambition above moral purpose.
The 24/7 media are always starved for attention grabbing stories to keep and build audiences so advertising revenues hold up. As a result, capitalism and most other sectors of human life look worse than they are. I for one see plenty of signs that a more conscious, less self-absorbed form of capitalism is alive and well and enjoying unprecedented growth. While I’m not sure what date Ken Costa would point to when capitalism did have moral moorings, I am sure far more companies today consider the interests of multiple stakeholders in their decision making.
Liberals only have to be tolerant of others’ opinions insofar as they don’t use the powers of the state to ban those opinions being expressed.
There’s nothing that follows from that about respecting others’ opinions. Idiots may have to be tolerated, but it doesn’t follow that what they say should be respected, met calmly or not have their idiot musings demonstrated to be nonesense.