The system is broken and cannot be fixed until we recover a concept of the common good, writes Breda O'Brien
WHEN WE talk about this economic crisis, let's look at why regulation failed, and will continue to fail in the future to prevent a meltdown. Let's talk about greed. Let's talk about sneering at the idea that the common good or ethics could have any part to play in the "real world" of high finance. Let's talk about exploiting the vulnerable, and reckless, insane gambling. Let's talk about the way that capitalism has decided that moral behaviour is for little people, and how little people get crushed.
There is a deep and justified anger among ordinary people that the arrogant and irresponsible actions of people obsessed with profit will, in all likelihood, tip us into the mother and father of all recessions. This crisis is not just the result of a temporary blip, but an inevitable result of one flawed assumption: that the most important function of business is to maximise profits for shareholders. You can have all the regulation you like, but it won't work so long as people within the system are doing their damndest to get around it.
Adam Smith, the great proponent of the free market, would be unable to recognise the travesty that exists today. Certainly, he believed that humans acted from self-interest. However, he also believed that compassion, friendship, love, and the desire for social approval were at least as important as self-interest as motives.
Smith could afford to take for granted that without ethical and responsible behaviour, the market could not operate. We have witnessed for over two decades behaviour that has destroyed trust in financial institutions. The system is broken, and it cannot be fixed until people learn that ethics is not just for wimps, but an integral and necessary part of business.
The maximising of profit for shareholders is an individualistic and unsustainable model. Because it ignores justice and fairness, it contains within it the seeds of its own destruction. Difficult (impossible?) as it is to imagine people in financial institutions returning to some form of moral behaviour, even that would not be enough.
The stakeholder model is often proposed as a remedy for the flaws of the shareholder model. While the shareholder model proposes that maximising profit for the shareholder is the ultimate good, the stakeholder model states that it is just one aim among many. The stakeholder model suggests corporations should be managed for the benefit of all its stakeholders (customers, suppliers, owners, employees, communities). This represents an advance, but it is not enough. We need to recover a concept of the common good. Both the shareholder and stakeholder model are founded on the idea that human beings are primarily individuals working in their own best interests. The stakeholder model does not sufficiently recognise that human beings are united by considerations greater than just reciprocal interest. There is a greater good, a vision of society where human beings can flourish.
One of the ways in which business and finance have gone off the rails is in viewing employees as contributing to the bottom line, and not as human beings with rights and responsibilities. It is an unsustainable model because it treats human beings like cannon fodder, to be used and discarded. Annihilating goodwill only leads to cynicism and disengagement. When employees have no sense of loyalty to a firm because it has no sense of loyalty to them, the firm is engaged in merrily sawing off the branch it is sitting on.
Some might say that all this talk of treating human beings as if they mattered is fine and dandy, but banks in particular will not change any of their practices while the Government underwrites them. The Government was faced with a very difficult situation. As a small, open economy with a small number of financial institutions, the collapse of any one would have had serious repercussions.
However, unless the model of business and finance changes drastically, crises will continue to occur, and not just once a century, as the ever optimistic Alan Greenspan believes. Cycles are inevitable in the business world, but there are two factors at work here that did not pertain to the same degree before. One is a cynical amorality, and the other is technology.
Technology amplified the crisis in at least two ways. The vast base of global information technology has linked markets, and allowed financial organisations to create and execute trades cheaply and quickly. However, the speed just brought the house of cards tumbling down faster. Secondly, the pervasive nature of technology means that there is no space for reflection. People are always caught up in a frantic pace that allows little time for family, and still less to contemplate the values underlying all the activity.
Once, "professional" meant virtues like prudence, judgment, reliability, and long-term thinking. Until we can begin to recover virtues like these, we will have no faith in a shower of chancers who will gamble and risk worldwide recession just because it will make some of them very rich indeed. Until that faith is recovered, the system will continue to be rotten.
bobrien@irish-times.ie