Moral Markets

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Some years ago, for reasons both convoluted and improbable, I attended a conference along with – among others – Lech Walesa and Mikhail Gorbachev. The two giants of the late Cold War debated the brutality of the Soviet system and the sometimes deeply exploitative nature of our own. As they drew to a close, Mr Walesa gestured dramatically across the stage, and said perhaps communism could have been a good system after all, if only it had always been run by people like Mr Gorbachev.

Afterwards my room-mate, a rising star in a leading American accountancy firm, flatly dismissed this. “He’s wrong,” he said, “it didn’t matter who was in charge; the markets wouldn’t have worked.”

Although I thought my room-mate was probably right, I’d felt some of Mr Gorbachev’s criticisms weren’t far off the mark; should wealthy countries really be able to bolster their own positions by hiring the best and brightest from poorer countries for salaries unimaginable at home? Didn’t that deprive developing countries of the very people they most needed to build their own economies, thus undermining real competition and perpetuating global inequality?

And, of course, as we all learned so painfully in 2007, any cockiness we had about the efficiency of our own system was completely unfounded; our markets, it turned out, didn’t work either. Our house was built on sand.

Catholic Social Teaching

In 2009 Benedict XVI issued his third encyclical, Caritas in Veritate, building on more than a century of Catholic social teaching to place the Church at the service of the world in terms of love and truth. Offering a Catholic vision of economics, politics, and society, Benedict rejected the idea that left to its own devices, an unfettered market would serve humanity at large:

“Economic activity cannot solve all social problems through the simple application of commercial logic. This needs to be directed towards the pursuit of the common good, for which the political community in particular must also take responsibility. Therefore, it must be borne in mind that grave imbalances are produced when economic action, conceived merely as an engine for wealth creation, is detached from political action, conceived as a means for pursuing justice through redistribution.”

It would be too easy to dismiss this as utopian idealism. Catholic social teaching, aside from being deeply rooted in Sacred Tradition, overlaps remarkably with the observations and theories of such luminaries as Amartya Sen and Joseph Stiglitz, Nobel Prizewinners who have long criticised traditional economic theories as lacking on both ethical and methodological grounds, seeing them as missing the point of what it means to be human.

Will Hutton’s 2003 The World We’re In, recognising the American economy of the day as the unstable chimaera it was soon proven to be, called on Britain to move away from neo-liberal economics towards the more stakeholder-focused varieties of capitalism found in such countries as Germany and the Netherlands. Unlike shareholder models of capitalism, which hold that a corporation’s sole social responsibility is to make profits for its shareholders, stakeholder models of capitalism recognise that a wide range of interest groups have a stake in corporations, and thus that corporations have duties to a larger society.

Hutton had been pleasantly surprised to see John Paul II, in his 1991 encyclical Centesimus Annus, apparently embracing such a view:

“The purpose of a business firm is not simply to make a profit, but is to be found in its very existence as a community of persons who in various ways are endeavouring to satisfy their basic needs and who form a particular group at the service of the whole of society.”

Addressing a 2008 Vatican conference, Hutton argued that the modern “knowledge economy” has made such an approach even more important than when John Paul II first outlined it. Our challenge, he said, is to try to shape capitalism “so that it does things in its own long-term interests and those of society”.

Caritas in Veritate had been partly written in response to such challenges, and it is interesting that both leaders of Britain’s main political parties appear now to be channelling aspects of Catholic social teaching, albeit indirectly. The Anglican Phillip Blond and the Jewish Maurice Glasman have been profoundly influenced by Catholic social teaching, and it is clear that their ideas are taken seriously – if not always fully understood – at the higher echelons of both Conservative and Labour parties.

Reciprocity -- the Missing Ingredient?

A few months back I attended a talk in London by Professor Daniel Finn, a prominent American scholar of economics and Catholic social thinking. Having already that day met the Archbishop of Westminster, Finn led a public discussion of whether markets could be made to operate in a way that would serve the common good rather than simply generating wealth for a relatively small number of people.

In exploring how we might assess a market’s morality, Finn asked us to consider what he called its “moral ecology”, this being a combination of its regulatory framework, the provision of essential goods and services, the morality of individuals within organisations, and the presence of a vibrant civil society.

Focusing on the central issue of morality, Finn quoted Caritas in Veritate:

“The earthly city is promoted not merely by relationships of rights and duties, but to an even greater and more fundamental extent by relationships of gratuitousness, mercy and communion.”

Finn observed that although these “relationships of gratuitousness” are central to our humanity, such reciprocity is almost wholly absent from economic textbooks, centred as they are upon exchanges and contracts.

Describing how we hold doors open for each other, Finn explained that reciprocity is a hybrid of contract and gift; we do such favours in the general expectation that people will either return the favour or perform similar favours for others. Highly ethical companies, he argued, tend to be notable for the role played within them by reciprocity. It builds trust, boosting social capital such that business thrives and everyone gains.

Finn’s idea that the promotion of a culture of reciprocity – rather than regulation – could hold the key to making markets moral might seem naïve, but the necessity for such an organic approach was foreseen in 1992 by Peter Drucker, probably the twentieth century’s most influential management guru. Identifying a host of problems that would face us now, Drucker said:

“All of these will be central concerns, especially in the developed world, for years to come. They will not be solved by pronunciamento or philosophy or legislation. They will be resolved where they originate: in the individual organisation and in the manager’s office.”

It may be that making people moral remains our best hope for making markets moral.