What is our human response to financial crisis and recession? A friend tells me how 15 software engineers were made redundant at a UK-based company where she works. It was more cost effective to outsource the work to a developing country. That same day, the senior executives went out for a £300 lunch. Not a huge deal, you might say, but nonetheless insensitive to the plight of those whom they had just laid off, to say the least. And it didn’t go unnoticed among the company’s staff, who thought that their directors were just not living in the real world.
I am struck by the number of commentators, from Will Hutton to Mikhail Gorbachev, who have called for moral as well as economic responses to the financial crisis. “Mr Darling must introduce morality into the City” declared Hutton in The Observer, 23 November. “The rebuilding of the financial system and a more moral system of taxation must begin tomorrow,” he wrote on the day before Alistair Darling’s budget report to parliament. Whether or not Darling has achieved this is up to each of us to judge. But the FTSE index of leading shares jumped 10 per cent and Hutton rated his economic statement seven out of ten. “This was an almost great economic statement—rising to the seriousness of the situation with boldness and sometimes real imagination…. On balance you have to hand it to Darling. This was good—one of the most dashing and risk-taking economic statements I can remember…” At least, it was certainly redistributive. But whether or not a small cut in VAT adds up to a row of beans in encouraging us to spend our way out or recession is a moot point.
Gorbachev—that staunch defender of free market capitalism as Soviet leader—was even more outspoken about the financial crisis. “As the global financial crisis continues to deepen, it is clear that the stock market collapse has hit not just the wealthy, whose lifestyles will hardly be affected, but also millions of ordinary people who entrusted their life savings to the market,” he wrote in a New York Times syndicated column on 5 November. “The economic model rooted in the early 1980s is falling apart. It was based on maximizing profit by abolishing regulation aimed at protecting the interests of society as a whole… The time has come to call for combining morality and business. This is a difficult issue. Of course business must profit, or it will die. But saying that the only moral duty of a businessperson is to make money is just one step away form the slogan of ‘profit at any price’.”
Gorbachev concluded his thoughtful article by saying: “I am convinced that, in a new economy, public needs and public goods must play a much bigger role than they do now. The public needs are clear enough: the need for a healthy environment; a modern, functional infrastructure; education and health systems; and accessible housing. To build a model emphasizing those needs will take time and effort. It will take an intellectual breakthrough. But there is one thing that policy-makers who bear the ultimate responsibility for overcoming the current crisis must understand: without a moral component any system is doomed to fail.”
This is really remarkable: the former Soviet leader pleading for a system of morality that might uphold the capitalist system as much as a socialist one.
As Karl Marx’s Das Capital began to fly off bookshelves, some predicted that capitalism was about to collapse, corrupted from within like the Roman Empire. Governments have acted quickly to shore up the financial institutions and this has had a positive knock on effect on the capital markets.
But the questions remain. How can capitalism be saved from its worst excesses? And how can it acquire or retain the moral component that Gorbachev pleads for? Maybe there is a need for a necessary legislative programme of regulation of financial markets rather than blanket deregulation. But, as I wrote in a recent Credo column in The Times (7 November), we can also turn to the father of capitalism himself for answers to these questions.
We remember Adam Smith for his emphasis on the “invisible hand” of the free market. If each person pursued their own interest, then the common good would also be served. But there was much more to it than that. Smith was professor of moral philosophy at GlasgowUniversity (1752-64), and it was, he said, “by far the most useful and therefore by far the happiest and most honourable period” of his life.
In 1759, 17 years before he published The Wealth of Nations, he wrote The Theory of Moral Sentiments. In it he referred to “compassion, the emotion we feel for the misery of others”; and “the Impartial Spectator” inside each of us which acted like “a demi-god within the breast”. It was “there to speak for itself and for others”. And “in the race for wealth, if injustice is done, the Impartial Spectator changes sides”. In other words, greed and the profit motive could not be condoned if they led to injustice.
Moreover, Smith described the “man within us”—in today’s language the conscience—as “the Vice-Regent of the Deity”; we needed to “co-operate with the Deity and advance, as far as in our power, the plan of Providence”.
As Stephen Young, of the Caux Round Table group of business executives, argues in his book Moral Capitalism, the separation of Smith’s two texts has given us a distorted notion of how capitalism should work. It is a point endorsed also by Raymond Baker, the Washington DC-based anti-corruption campaigner and authority on the evils of money laundering, in his book Capitalism’s Achilles Heel.
I believe that capitalism cannot be separated from conscience. For without conscience, and without what one might call the “invisible hand” of divine grace, untamed capitalism too easily leads to corruption—and to the greed and dishonesty, the loss of humanity and common sense, that we have recently seen in the financial markets. To rescue capitalism and the banking system, we need to revisit Adam Smith’s moral philosophy—and our own consciences.