Morality and the Markets

Capitalism and ethics make uncomfortable bedfellows, thinks Giles Fraser.

In his fascinating introduction to the long-awaited St Paul's Institute report on morality and the City (PDF here), outgoing Canon Chancellor Giles Fraser tells a by-now familiar tale of how ethics in the financial markets were subverted by a combination of de-regulation and computerisation following the Big Bang of 1986. What was lost, he thinks, was the salutary effect of face-to-face communication that was basic to that prelapsarian world of old school ties, when an Englishman's word was his bond. He sounds positively misty-eyed about those far-off days:

The old City may have been an exclusive and inward looking club -- but the benefit of clubs is that members often have a better developed sense of values and are able to hold each other to account for failing to live up to the club's standards. As Albert Schweitzer put it: "Ethics is a state of solidarity with other human beings."

Put this another way: moral behaviour is bound up with empathy, and you're likely to feel more empathy with another person when you can see the whites of their eyes. No system of regulation can fully compensate for that. There's a truth in here, which is that human beings have a pronounced tendency to respond more warmly to people than to abstractions. Personal relationships engage the conscience, and also ancient and probably innate human instincts of loyalty and shame.

The moral Prime Directive underlying all this is that of reciprocity: as it is often expressed, "do unto others as you would have them do unto you." This sounds religious. It has been discovered and claimed as their own by all major world religions. But it is in fact pre-human, an evolved response to the problem of survival. Vampire bats are the standard example from nature. It is in the interest of bats to share the fruits of their bloodsucking with other, less advantaged bats, because the night may come when they themselves will have to rely on the generosity of a fellow bat. From such humble beginnings may derive our ethics and the most valuable insights of religion.

Yet human personal relationships have always been vulnerable to less wholesome passions: hatred, resentment, revenge, one-upmanship, herd mentality, contagious fear and intrigue. Giles Fraser admits that the pre-Big Bang City was not a paragon of virtue. He mentions the Guinness scandal as a case in point. His argument is that such problems are magnified when personal relationships are replaced by purely "transactional" ones, and the market itself becomes a source of virtue:

Appealing to the market as an independent authority, unconnected with human decisions about 'housekeeping', has meant in many contexts over the last few decades a ruinous legacy for heavily indebted countries, large-scale and costly social disruption even in developed economies; and, most recently, the extraordinary phenomena of a financial trading world in which the marketing of toxic debt became the driver of money-making -- until the bluffs were all called at the same time.

But there's a paradox here. For whatever the virtues of personal relationships the great moral insight of the market economy derives from its very impersonality, which for the first time made possible a kind of objective ethics. And the market is reciprocity in action. As Adam Smith famously said, "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest."

The title of the St Paul's report, Value and values, is a reminder of how much of our moral vocabulary consists of metaphors derived from the marketplace. Value is a measure of what something is worth. And a "worthy" person is morally an upright one. If someone does you a favour you are in their debt, you owe them. And there's no such thing as a free lunch. Sooner or later will come payback time. You will be held to account for your actions. Respect, in life, has to be earned. Conversely, we believe that criminals should "pay" for their crimes, that betrayal is a sell-out and that politicians who lecture the rest of us while enjoying the privileges of office are morally bankrupt.

The moral language of the markets is as old as the Bible. The Old Testament reports that a king of Babylon was "weighed in the balance and found wanting", and tells us that the price of a virtuous woman is "far above rubies". In the "parable of the talents" (a talent being a large quantity of silver), Jesus speaks of spiritual capital as a sum of money with which you should speculate to accumulate. As for Muhammad, he worked for most of his life as a trader.

What all this suggests to me is that the trading relationship that developed in the first market economies enabled people to think about ethics and morality in new and interesting ways, and has thus been a source of moral progress.

Before the formalisation of relationships in the marketplace, there were "primitive", intuitive forms of social relationship: parent and child, sexual partnership, the wider kinship systems of the tribe, and the relationship of subordinate to superior in a dominance hierarchy. All such "natural" relationships are mediated by, and encourage, pre-moral forms of repriprocity: bribes, threats, genetic claims, feelings of social solidarity, etc.

Such relationships may contain the seeds of morality, but by themselves are not moral; in fact they can impede morality as we now understand it. We think it's wrong to bribe or threaten others or promote our relatives against better-qualified non-relatives, for example. For most of human history, and in some places even today, this would not have seemed obvious. That it seems obvious to us is one of the moral lessons of the market.

"Personal relationships good, impersonal market forces bad" is thus at best a simplification and probably highly misleading. A properly functioning market will expose and punish underhand behaviour. The main problem with today's financial markets is that they have become dysfunctional.

Belief, disbelief and beyond belief
David Young
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The Tories are the zombie party: with an ageing, falling membership, still they stagger on to victory

One Labour MP in Brighton spotted a baby in a red Babygro and said to me: “There’s our next [Labour] prime minister.”

All football clubs have “ultras” – and, increasingly, political parties do, too: although, in the case of political parties, their loudest and angriest supporters are mostly found on the internet. The SNP got there first: in the early days of email, journalists at the Scotsman used to receive bilious missives complaining about its coverage – or, on occasion, lack of coverage – of what the Scottish National Party was up to. The rest soon followed, with Ukip, the Labour Party and even the crushed Liberal Democrats now boasting a furious electronic horde.

The exception is the Conservative Party. Britain’s table-topping team might have its first majority in 18 years and is widely expected in Westminster to remain in power for another decade. But it doesn’t have any fans. The party’s conference in Manchester, like Labour’s in Brighton, will be full to bursting. But where the Labour shindig is chock-full of members, trade unionists and hangers-on from the charitable sector, the Conservative gathering is a more corporate affair: at the fringes I attended last year, lobbyists outnumbered members by four to one. At one, the journalist Peter Oborne demanded to know how many people in the room were party members. It was standing room only – but just four people put their hands up.

During Grant Shapps’s stint at Conservative headquarters, serious attempts were made to revive membership. Shapps, a figure who is underrated because of his online blunders, and his co-chair Andrew Feldman were able to reverse some of the decline, but they were running just to stand still. Some of the biggest increases in membership came in urban centres where the Tories are not in contention to win a seat.

All this made the 2015 election win the triumph of a husk. A party with a membership in long-term and perhaps irreversible decline, which in many seats had no activists at all, delivered crushing defeats to its opponents across England and Wales.

Like José Mourinho’s sides, which, he once boasted, won “without the ball”, the Conservatives won without members. In Cumbria the party had no ground campaign and two paper candidates. But letters written by the Defence Secretary, Michael Fallon, were posted to every household where someone was employed making Trident submarines, warning that their jobs would be under threat under a Labour government. This helped the Tories come close to taking out both Labour MPs, John Woodcock in Barrow and Furness and Jamie Reed in Copeland. It was no small feat: Labour has held Barrow since 1992 and has won Copeland at every election it has fought.

The Tories have become the zombies of British politics: still moving though dead from the neck down. And not only moving, but thriving. One Labour MP in Brighton spotted a baby in a red Babygro and said to me: “There’s our next [Labour] prime minister.” His Conservative counterparts also believe that their rivals are out of power for at least a decade.

Yet there are more threats to the zombie Tories than commonly believed. The European referendum will cause endless trouble for their whips over the coming years. And for all there’s a spring in the Conservative step at the moment, the party has a majority of only 12 in the Commons. Parliamentary defeats could easily become commonplace. But now that Labour has elected Jeremy Corbyn – either a more consensual or a more chaotic leader than his predecessors, depending on your perspective – division within parties will become a feature, rather than a quirk, at Westminster. There will be “splits” aplenty on both sides of the House.

The bigger threat to Tory hegemony is the spending cuts to come, and the still vulnerable state of the British economy. In the last parliament, George Osborne’s cuts fell predominantly on the poorest and those working in the public sector. They were accompanied by an extravagant outlay to affluent retirees. As my colleague Helen Lewis wrote last week, over the next five years, cuts will fall on the sharp-elbowed middle classes, not just the vulnerable. Reductions in tax credits, so popular among voters in the abstract, may prove just as toxic as the poll tax and the abolition of the 10p bottom income-tax rate – both of which were popular until they were actually implemented.

Added to that, the British economy has what the economist Stephen King calls “the Titanic problem”: a surplus of icebergs, a deficit of lifeboats. Many of the levers used by Gordon Brown and Mervyn King in the last recession are not available to David Cameron and the chief of the Bank of England, Mark Carney: debt-funded fiscal stimulus is off the table because the public finances are already in the red. Interest rates are already at rock bottom.

Yet against that grim backdrop, the Conservatives retain the two trump cards that allowed them to win in May: questions about Labour’s economic competence, and the personal allure of David Cameron. The public is still convinced that the cuts are the result of “the mess” left by Labour, however unfair that charge may be. If a second crisis strikes, it could still be the Tories who feel the benefit, if they can convince voters that the poor state of the finances is still the result of New Labour excess rather than Cameroon failure.

As for Cameron, in 2015 it was his lead over Ed Miliband as Britons’ preferred prime minister that helped the Conservatives over the line. This time, it is his withdrawal from politics which could hand the Tories a victory even if the economy tanks or cuts become widely unpopular. He could absorb the hatred for the failures and the U-turns, and then hand over to a fresher face. Nicky Morgan or a Sajid Javid, say, could yet repeat John Major’s trick in 1992, breathing life into a seemingly doomed Conservative project. For Labour, the Tory zombie remains frustratingly lively. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.

This article first appeared in the 01 October 2015 issue of the New Statesman, The Tory tide