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What’s in it for us all?

What's in it for us all?

Dit artikel door Dr. Annemarie Hinten-Nooijen is gepubliceerd in Asset Magazine.


Looking beyond the world with banks as temples and financials as high priests
geplaatst: 25-11-10

The economy and economics are about business, trade, capital and the business relations between human beings living together. That is, between creatures of flesh and blood, in which reason, emotions, affects and also belief and superstition spin around. Therefore, it should not cause any surprise that the world of capital and the world of religion do have much ground in common. However, economists, managers, and business men do not see that capitalism actually is a kind of cult religion. Besides, they have lost sight of the fact that economy is a social practice. After a period of footloose enrichment, it is useful to examine the portrayal of man behind capitalism and to look for the implications of the current meritocracy for people's life. And then we can see that the question 'What's in it for me?' seems to have become outdated...

Belief and magic within capitalism
Prior to this crisis, we thought the world of capital was a purely rational world consisting of optimally functioning models and super rational acting human beings. But the recent economic and financial crisis showed that belief not only plays a role within the context of religion, but also within the practice of the economy, not unlike superstition. In the past decade, the world of the market economy became a magic world without boundaries of reality. The hero of this world was Harry Potter. His behaviour convinced a whole generation to discover the magician in oneself. And doing magic means looking for the limits of the magic and obscuring the relation between cause and effect. Economically this means that the reward is out of all proportion to the performance. You had the choice: work very hard forty hours for a normal salary, or surpass reality, and by doing some hours of magic work in the financial world of obscure financial constructs, belong to the very rich.

Capitalism is religion, 'a pure cult religion', 'eine reine Kultreligion', as the German-Jewish philosopher Walter Benjamin put it at the beginning of the Twenties of the twentieth century. A religion, because capitalism replies to the same worries, anxiety and turmoil as the religions once did. The affinity between the vocabularies of the two is striking: credit and credo, price and praise, emission (issue) and mission. Banks are temples, financials the high priests. According to Benjamin, capitalism may be the most extreme cultus religion that has ever existed, because capitalism has no doctrine you have to believe in, but is pure act. In capitalism, everything is included in the merciless worship of constant production, trade, and consumption. Actual capitalism is not an idea with which you can just disagree or agree with for moral reasons, but a practical system that lets us act continuously and that is confirmed repeatedly by all our acts. Purely theoretical or moral criticism do not get grip on capitalism, because capitalism justifies itself in practice and because nobody can abstain being part of it. The understanding of these aspects of the world of capital can help to prevent extreme situations such as those of the past few years.

Economy, a social practice
We not only lost track of the fact that economy has things in common with religion, but also that it is a social practice. The economy as a whole and the financial system in particular developed and were seen as a battle of all against all and drifted apart from their relation with society as a whole. But economy itself is an intrinsic form of social acting, a way of contributing to the building of society, a point made most cogently in this context by the Tilburg professor Erik Borgman. Economy is the exchange of goods and services. In that way, people take care of each other. Money is a means to achieving that, not a goal in itself or the standard of the value of all the other things. On the dollar it is written 'In Gód we trust', not in the dollar itself. The market is the way of organizing people living together and stimulating good coexistence. Economy, in every form, is a social practice. The price people want to pay for a product, is the expression of a relation - the one offers something that the other needs. In recent years, people were deceived into believing that it is good to pay for something they did not want to buy - products they could sell in future for a even higher price, like the mortgages in the US - but then the market collapsed.

The recent economic crisis shows the dramatic failure of an attempt to let the economy function independently of the rest of society. We have to develop mechanisms that bind the financial system to the real economy of production and consumption and to the distress and needs of people. Soon there will be a period of systems of value creation in which human beings will be central. When it is not only about money, more opportunities will become available, a point Martijn Aslander of the monthly De Zaak stresses. He does not send invoices for supplying services but tries to be of value and he leaves the responsibility of compensation to the person with whom he worked.

Bad examples set bad precedence
To steer capitalism in the right direction and to divide prosperity, it is necessary to have proper rules and active authorities, but even more to seriously think about the image of mankind you presuppose. The Tilburg professors of economics Harry van Dalen and Kees Koedijk have stressed this necessity, starting from the idea that economics is a social science, that starts and ends with the acting and thinking of man: many economists only focussed on their models and on an image of mankind as a rational, super rational being. But man does not know everything and besides, he lets himself be led by many motives, instincts, and values. What is a realistic view on man? Since ancient times, philosophers have thought about the tension between reason and sensation within mankind, about the relationship between wanting, knowing, and doing things within human acting. Do acts perfectly arise from intentions? Human begins are not rational actors who let acting depend on the cold analyses of costs and benefits. They can only process limited amounts of information, are ruled by affects and emotions, are short-sighted, and are predisposed to make mistakes. Furthermore, people are social creatures, they work as a team. But that does not mean that the social disposition always leads to solidarity. After all, investors and bankers are also social creatures, but in social interaction a culture can develop in which they gloss over risky behaviour. In social interaction, supervisors seem to build a group and develop norms that are neither rationally nor socially sound.

Virtue theories contain reactions to aspects of the social and the antisocial. The virtue of moderation can help with antisocial behaviour and is of vital importance to keep greed and perverted exercise of power under control. Virtue is based on the expectations of someone else's virtuousness: when you expect others to behave more or less according to the rules, you will be inclined to do so, as well. And, when others observe the rules, it is easier for you to comply with them, because you can be confident that the others will not enrich themselves unilaterally, also at your costs. Conversely, when others are not so very particular, why would you be? Both moral and immoral behaviour can work contagiously. Bad example is followed by bad behaviour. In essence, that is what took place within the business world.

The winner takes it all
Leading a virtuous life is not easy, all the more so, because in our current society everybody has the chance to climb the social ladder. The pressure of being successful, i.e., economically successful, which is one's own responsibility, stimulates greedy pursuit and a focus on self-interest. In this societal model of the so-called meritocracy, the social-economic position of people is not based on birth or privileges, but on talent and merit. In earlier times, the social hierarchy in Europe was already fixed at birth. But in contemporary society, everyone has to achieve their status by themselves. In his work Status Anxiety, the French philosopher Alain de Botton relates greed to the rise of meritocracy. It leads to unprecedented competition and greed, because money is status. If you manage your affairs well, than it is to your own merit. If you manage them badly, then it is your own fault.
In a meritocracy, people should get what they deserve, but that is not always the case. Unsuccessful managers do get a golden handshake. It is not about how good you are, but about how you can come away unscathed. A culture of winning is dominant, and the winner takes all. The rest are losers. Meritocracy thereby is individualistic. It encourages the ability to cope for oneself and does not encourage solidarity. The self-interest prevails over the common good. People ask 'What's in it for me?' instead of 'What's in it for us all?'. The sociologist Dick Pels sets ambition against greed, with praise as a reward, instead of lucre. To gain credit, you are always dependent on others, so there is a relation with others. And that will naturally encourage the focus on the common good.

Lessons from Islamic finance
From the perspective of financial products, not only a relation with others is important, but also a relation with tangible assets is crucial; this precludes the creation of derivates that allow investors to speculate on the future price of, for example, commodities or shares, without buying the underlying investment. What can recent history teach us? Islamic countries were less hit by the crisis. It seems that when a financial system is organized according to the principles of the sharia, with a link to tangible assets, credit crises are mitigated. Speculation is prohibited by the sharia. Islamic finance stands for risk-sharing along with the availability of credit for primarily the purchase of real goods and services and restrictions on the sale of debt, short sales, excessive uncertainty, and gambling. The making of profit by 'money over money' is not allowed. This business and market is relatively young and the risks are mainly unknown. The first Islamic debenture appeared in 2002 in Malaysia , the so-called 'sukuk'. Whereas many debentures devaluated, the value of this product multiplied by ten in the past ten years. Not only in the Muslim world, but also in the West, at such banks as BNP Paribas and HSBC, there are departments providing Islamic banking services, although conspicuously not in the Netherlands. Of course, there is enough room for improvement within this market, given such events as the 'Dubai Debt Crisis' at the end of 2009. But Islamic finance can help inject greater discipline into the system and, thereby, substantially reduce financial instability. Some years ago Warren Buffet warned that all the derivates and the packages of mortgages and of debts, of which is unclear what they are actually worth, what they refer to, and what their provenance is, are time bombs and "financial weapons of mass destruction" that could harm not only their buyers and sellers, but the whole economic system.

Fear wanes where hope waxes
"There must be losers, and it will not be pain free", Joachim Spangenberg, vice president of the Sustainable Europe Research Institute (SERI) said in January of this year at the conference 'A Fair and Green Deal' at Tilburg University. And that counts also for us, the affluent West, as the president of Brazil, Lula da Silva warns us: "Even strong as they are today, rich countries should have no illusion: nobody is safe in a world of injustices". In short, our behaviour takes its toll. If we make that sacrifice, then we can be optimistic we will emerge from the crisis even stronger.
When the things in which people trust teeter, anxiety occurs. Also at the international level trust is diminishing, and this is visible in the rise of protectionist measures and a focus on internal markets. How can people become guided by the common good? Hope can give strength to keep a country and the people going. And when do people get hope? When they know that they are part of an attractive story that is bigger than themselves. Whether that story is a religion or a reformed economic system in which they can believe in, is of no importance. The question asked by Joseph Stiglitz at the end of his book Free Fall can provoke a reply here: "Will we seize the opportunity to restore our sense of balance between the market and the state, between individualism and the community, between man and nature, between mean and ends?". We can additionally ask if a world of capital with the criterion 'what's in it for us all?' is possible and if we want to dedicate ourselves to that. A positive answer seems to be inevitable if we want our children to have it as good or rather better than we do...

dr. Annemarie Hinten-Nooijen (Academic Forum)

Sources:

  • Alain de Botton: Status Anxiety. London 2004
  • Dick Pels: 'Eerherstel voor de eer. Op weg naar een sociale meritocratie'. Socialisme & Democratie 63/3 (2006), pp. 28-38
  • Joseph Stiglitz: Freefall. America, Free Markets, and the Sinking of the World Economy. New York 2010
  • Wibier, R.M., & Salah, O: 'De kredietcrisis en islamitisch bankieren. Shari'a-conforme financie-ringen in het licht van de kredietcrisis'. Nederlands Juristenblad, 85 (27) (2010), pp. 1738-1746
  • M. Umer Chapra: 'The global financial crisis: can islamic finance help minimize the severity and frequency of such a crisis in future?'. ISDBForum.org, 21 October 2008
  • Alexander Osterwalder and Yves Pigneur: Business Model Generation. Hoboken 2009
  • Harry van Dalen and Kees Koedijk: 'De leunstoeleconoom gaat aan verbeelding ten onder'. Me Judice, vol. 2, 13 June 2009
  • Het Financieele Dagblad (September, October 2010)
  • www.news.bbc.co.uk, 4 March 2003