Ethics and economics to save society

Commentary: In the countries where there has been an unprecedented expansion of higher education and wealth that has led to the creation of the middle class, the capitalism crises lead to the dilemma of identity and frustration

Deep rifts are tearing through the body of our society. They cause new anxiety and anger among people and create new currents in politics. The social basis of this anxiety includes geographical, educational and ethical factors.

People are not born to earn a lot of money. Quite the reverse. They just want to live well or as well as they are used to, and earn what they need without wanting to exploit others.

Many thoughts and theories that had a great impact in the world have often been orphaned, and are adopted by other schools of thought. Therefore they cannot avoid criticism.

For example, Jeremy Bentham, the philosopher who laid the ethical foundations of modern capitalism, as well as other thinkers, are not moral giants in the modern sense of the word, but are known for their incompatibility with ethics. Utilitarianism pursues maximum utility and happiness and it is not by chance that it is adopted by the emerging Western economics and, under the constraints of creating an ‘economic man’, can easily be developed with new methods obtained from mathematical statistical calculation (derivative systems).

The maximum value thus satisfies the economy’s urgent need for sophisticated and accurate quantitative systemic tools. This set of amoral ethical thoughts that came out of the pursuit of ‘natural values’ that everyone, not just a few, should obtain, has gradually been forgotten by the critical history of economic thought.

Utilitarianism and liberalism are the two complementary and contradictory pillars in the foundation of market economy. The former separates the standard of moral judgement on personal behavior from the passion for money accumulation, and changes it to be completely determined by the profit motive. Therefore, only such behavior can enhance “the greatest happiness for the greatest number of people”, self-referencing itself as ethical and eliminating the instinctive value judgement of every human being who is unable to achieve such happiness due to money. According to this ‘sacred’ standard, the elite group of technocrats should objectively play the role of ‘social guardian’.

Liberalism recognizes the goal of utilitarianism, but firmly opposes the inference that it leads to a strong central government. Adam Smith believed that the division of labor and exchange were spontaneous and for free and could promote the general happiness of society and the enhancement of personal wellbeing at the same time. The theorems of welfare economics infer that all the outcomes of spontaneous market equilibrium must result in welfare maximization. Conversely, the maximization of overall welfare in practice is achieved by the free will of the individual (the entrepreneur), i.e. by a selfish behavior of the individual. According to the liberals, the government’s role in it is to make only a few changes to the ‘distribution of initial capital’. Hence no longer Hegel’s Ethical State, but the State as simple administrator, employed by the aforementioned elite. At this point, the ethical project of liberal capitalism is complete.

Free choice and welfare maximization can theoretically be achieved at the same time. Therefore, what people have to do is to favor State restrictions and at the same time promote full competition, as well as reduce information and external asymmetries through homologation and standardization. Hence the aim of capitalism is to remove the ethical role of the State.

Ironically, however, the ethical structure of liberal capitalism has never been perfect outside theoretical designs, i.e. it has manifested itself in a particular part of the world by going through devastating crises. The Great Depression ran over the ‘sacred invisible hand’ of the economy like an elephant tramples a clod of earth. World War II pushed the collective will and mobilization of State capitalism to their limits, through the well-known political and economic examples.

Peoples have different forms of expression, the electoral and the revolutionary ones. Socialism in the aftermath of World War II and, even before, communitarianism became good medicine and correctives for the horrors of capitalism. In major European countries, social democratic parties have brought about major changes in liberal capitalism, the culmination of which are the Scandinavian models.

Paul Collier, Professor at the Oxford Universities and author of The Future of Capitalism: Facing the New Anxieties (2018) took his own hometown, Sheffield, as an example in his book. Sheffield was the first city in the North of England to experience the industrial revolution and was also the first to face the new anxiety caused by that revolution: the polarization between the rich and the poor, unemployment and the environment.

Following the deterioration of the situation and demographic changes, the citizens’ response was to enhance ties among them and create a sufficiently strong community, as well as use this close relationship to create an organization establishing charitable cooperatives.

For example, housing cooperatives allow people to save money to buy houses; insurance cooperatives reduce risk, and agricultural and retail cooperatives give farmers and consumers independent bargaining power over large corporations.

The cooperative movement that started and developed in the North of England quickly spread to most of Europe and became the economic basis of the center-left social democratic parties. It was, however, the center-left of that time, not today’s political farce with well-known bit-part actors and actresses.

Through the alliance, the community spread across the country and reciprocity within the community extended to mutual commitment between State and citizens. The pragmatic policies of medical insurance, pension, education, unemployment and welfare eased families’ anxiety. Over the years, social democracy has alternately taken power in capitalist countries, and these socialist measures have been long-term and universally maintained – at least so far.

With the decline of the steel industry, cities became typical obsolete and dilapidated centers. In various European countries, the decline of the social democratic parties – which initiated in the 1970s – started to step up at the beginning of the century and has reached its peak over the last ten years. Decline has occurred in France, Germany, Spain and Italy (where the glorious Socialist Party (PSI) has disappeared). Support rates in Norway and the Netherlands have fallen significantly.

It should be noted, however, that the traditional center-right parties have not benefited from it and have even become a launching pad for movements hetero-directed by stateless financial capital and by vague and inconclusive agendas. Italy is a painful case in point.

Globalized capitalism is clearly responsible for all this – through technology and mass addiction – and raises once again the problem of the incompatibility of rights and duties in the liberal society, at the time when the gap between the rich and the poor is widening. Italy is the worst among the most populous European countries in terms of difference in income between the rich and the poor: in our country, 20% of the population with the highest incomes can count on more than six times the incomes of the 20% with the lowest ones.

The decline of the ethical State and the collapse of social democracy are the contradiction between the actual collapse of mutual obligations (rights-duties) in globalized capitalism and the increasing demand for the aforementioned obligations due to the more complex and asymmetrical economic structure (just consider violence in South America owing to the continuing failures of capitalism).

Fiscal crises with high welfare have also spread to Europe: it should be recalled that the double entendre PIIGS (Portugal, Italy, Ireland, Greece and Spain) was used in 2008-2010, as well as “Rust Belt” (the U.S. region between the Northern Appalachian Mountains and the Great Lakes) to refer to phenomena such as economic decline, depopulation and urban decay due to the contraction of the once very active industrial sector, after the 2008 financial crisis.

Therefore, in the countries where there has been an unprecedented expansion of higher education and wealth that has led to the creation of the middle class, the capitalism crises lead to the dilemma of identity and frustration.

If we do not confine ourselves to the hypothesis of a “rational economic man”, but rather focus on the more realistic “rational social man”, we will have more economic benefits, since the respect for identity is included in the satisfaction of individual needs.

A simple thinking model may suggest an idea. If everyone has two goods or assets, namely work and citizenship, both can lead to a certain respect. Respect for work is reflected in income and respect for citizenship in the country’s prestige. Although everyone cannot choose their identity, they can choose ‘prominence’: choosing a prominent identity indicates a common group to which we proactively belong. The more the common group is respected, the more individuals are encouraged not to prevaricate against each other in pursuit of their own happiness by doing harm to the others.

Conversely, the ethics of liberal capitalism traditionally aims at destroying the State and turning citizens into consumers without identity.

Giancarlo Elia Valori