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.

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The Brexit Beartraps, #2: Could dropping out of the open skies agreement cancel your holiday?

Flying to Europe is about to get a lot more difficult.

So what is it this time, eh? Brexit is going to wipe out every banana planet on the entire planet? Brexit will get the Last Night of the Proms cancelled? Brexit will bring about World War Three?

To be honest, I think we’re pretty well covered already on that last score, but no, this week it’s nothing so terrifying. It’s just that Brexit might get your holiday cancelled.

What are you blithering about now?

Well, only if you want to holiday in Europe, I suppose. If you’re going to Blackpool you’ll be fine. Or Pakistan, according to some people...

You’re making this up.

I’m honestly not, though we can’t entirely rule out the possibility somebody is. Last month Michael O’Leary, the Ryanair boss who attracts headlines the way certain other things attract flies, warned that, “There is a real prospect... that there are going to be no flights between the UK and Europe for a period of weeks, months beyond March 2019... We will be cancelling people’s holidays for summer of 2019.”

He’s just trying to block Brexit, the bloody saboteur.

Well, yes, he’s been quite explicit about that, and says we should just ignore the referendum result. Honestly, he’s so Remainiac he makes me look like Dan Hannan.

But he’s not wrong that there are issues: please fasten your seatbelt, and brace yourself for some turbulence.

Not so long ago, aviation was a very national sort of a business: many of the big airports were owned by nation states, and the airline industry was dominated by the state-backed national flag carriers (British Airways, Air France and so on). Since governments set airline regulations too, that meant those airlines were given all sorts of competitive advantages in their own country, and pretty much everyone faced barriers to entry in others. 

The EU changed all that. Since 1994, the European Single Aviation Market (ESAM) has allowed free movement of people and cargo; established common rules over safety, security, the environment and so on; and ensured fair competition between European airlines. It also means that an AOC – an Air Operator Certificate, the bit of paper an airline needs to fly – from any European country would be enough to operate in all of them. 

Do we really need all these acronyms?

No, alas, we need more of them. There’s also ECAA, the European Common Aviation Area – that’s the area ESAM covers; basically, ESAM is the aviation bit of the single market, and ECAA the aviation bit of the European Economic Area, or EEA. Then there’s ESAA, the European Aviation Safety Agency, which regulates, well, you can probably guess what it regulates to be honest.

All this may sound a bit dry-

It is.

-it is a bit dry, yes. But it’s also the thing that made it much easier to travel around Europe. It made the European aviation industry much more competitive, which is where the whole cheap flights thing came from.

In a speech last December, Andrew Haines, the boss of Britain’s Civil Aviation Authority said that, since 2000, the number of destinations served from UK airports has doubled; since 1993, fares have dropped by a third. Which is brilliant.

Brexit, though, means we’re probably going to have to pull out of these arrangements.

Stop talking Britain down.

Don’t tell me, tell Brexit secretary David Davis. To monitor and enforce all these international agreements, you need an international court system. That’s the European Court of Justice, which ministers have repeatedly made clear that we’re leaving.

So: last March, when Davis was asked by a select committee whether the open skies system would persist, he replied: “One would presume that would not apply to us” – although he promised he’d fight for a successor, which is very reassuring. 

We can always holiday elsewhere. 

Perhaps you can – O’Leary also claimed (I’m still not making this up) that a senior Brexit minister had told him that lost European airline traffic could be made up for through a bilateral agreement with Pakistan. Which seems a bit optimistic to me, but what do I know.

Intercontinental flights are still likely to be more difficult, though. Since 2007, flights between Europe and the US have operated under a separate open skies agreement, and leaving the EU means we’re we’re about to fall out of that, too.  

Surely we’ll just revert to whatever rules there were before.

Apparently not. Airlines for America – a trade body for... well, you can probably guess that, too – has pointed out that, if we do, there are no historic rules to fall back on: there’s no aviation equivalent of the WTO.

The claim that flights are going to just stop is definitely a worst case scenario: in practice, we can probably negotiate a bunch of new agreements. But we’re already negotiating a lot of other things, and we’re on a deadline, so we’re tight for time.

In fact, we’re really tight for time. Airlines for America has also argued that – because so many tickets are sold a year or more in advance – airlines really need a new deal in place by March 2018, if they’re to have faith they can keep flying. So it’s asking for aviation to be prioritised in negotiations.

The only problem is, we can’t negotiate anything else until the EU decides we’ve made enough progress on the divorce bill and the rights of EU nationals. And the clock’s ticking.

This is just remoaning. Brexit will set us free.

A little bit, maybe. CAA’s Haines has also said he believes “talk of significant retrenchment is very much over-stated, and Brexit offers potential opportunities in other areas”. Falling out of Europe means falling out of European ownership rules, so itcould bring foreign capital into the UK aviation industry (assuming anyone still wants to invest, of course). It would also mean more flexibility on “slot rules”, by which airports have to hand out landing times, and which are I gather a source of some contention at the moment.

But Haines also pointed out that the UK has been one of the most influential contributors to European aviation regulations: leaving the European system will mean we lose that influence. And let’s not forget that it was European law that gave passengers the right to redress when things go wrong: if you’ve ever had a refund after long delays, you’ve got the EU to thank.

So: the planes may not stop flying. But the UK will have less influence over the future of aviation; passengers might have fewer consumer rights; and while it’s not clear that Brexit will mean vastly fewer flights, it’s hard to see how it will mean more, so between that and the slide in sterling, prices are likely to rise, too.

It’s not that Brexit is inevitably going to mean disaster. It’s just that it’ll take a lot of effort for very little obvious reward. Which is becoming something of a theme.

Still, we’ll be free of those bureaucrats at the ECJ, won’t be?

This’ll be a great comfort when we’re all holidaying in Grimsby.

Jonn Elledge edits the New Statesman's sister site CityMetric, and writes for the NS about subjects including politics, history and Brexit. You can find him on Twitter or Facebook.