The “false god” of free markets
In the lead up to the G20 Summit, both the British and Australian Prime Ministers addressed more than 1,000 people at St Paul’s Cathedral in London. The key message shared by both leaders is that markets need morals.
With nations around the world affected by the worst economic recession since the Great Depression, both Gordon Brown and Kevin Rudd stressed the critical urgency of rebuilding an economic system built on the foundations of trust, morals and our responsibility for the common good.
As Prime Minister Rudd stated: “So, to answer the great moral question of the ages: what then is to be done? The challenge for all governments is to rebuild an economic system in which all, not just some, can have trust….Unfettered free markets became worshipped as a god, and we know that god was false. This ideology held that markets were self-regulating, that governments’ regulation of such markets was interference and that the unrestrained pursuit of self-interest was not only morally legitimate but, equally, to be morally encouraged.”
Gordon Brown echoed the same concerns that strong rules, which are rooted in shared values, are the best way to serve both our market systems and ourselves. Gordon Brown provided an example of Adam Smith’s economic theory that “the invisible hand of the market had to be accompanied by the helping hand of society, the flourishing of moral sentiments comes before and is the foundation on the wealth of nations.”
During the G20 Summit, world leaders will rally against protectionism of free trade. We know that in the past that isolationism of trade does not work. It will lead to the shrinking of markets, increased further unemployment, decrease innovation in industry, hurt the most impoverished people, and it is an obstacle to economic recovery.
According to the OECD figures, the economies of 30 developed nations has contracted by 4.3 percent. On the domestic front, the unemployment rate rose in February to 5.2 percent, taking the rate to its highest level in four years.
The nightly news has made it all too familiar across Australia: closure of factories, shops and businesses and companies outsourcing or moving offshore has resulted in massive job cuts. This is the reality for thousands of working families across the suburbs, towns and cities throughout the nation. Prime Minister Brown said: “For too many families anxious about jobs, worried about mortgages, uncertain about their future, the most important financial summits are those that take place around their kitchen table.”
The excess of bonuses paid to corporate executives clearly highlights the problem of an economic system that is not fair, that is not properly regulated, and has contributed to the moral erosion of society. In 2005, former Treasurer Peter Costello questioned Macquarie Bank’s payout given to the former CEO Allan Moss for $18.5 million and that another five top executives were receiving more than $10 million each.
Prime Minister Rudd explained that “For the last quarter of a century, we have been told through the spirit of the age that our principal values are those of security, liberty and prosperity. These values are entirely legitimate, but to these values of security, liberty and prosperity must also be grafted the values of equity, of sustainability and community.”
That was clearly not the case when earlier this year, Telstra announced that its Chief Executive Sol Trujillo will be given a payout estimated at more than $20 million. However, in September 2008, Telstra decided to cut 800 jobs in Melbourne, Brisbane and Sydney. More recently, Pacific Brands executives received a massive 170 percent payrise before sacking 1,850 employees. Official documents show the Federal Government gave Pacific Brands and associated companies more than $15 million of financial assistance between 2006 and 2008.
As Gordon Brown addressed: “This old world of the old Washington consensus is over, and what comes in its place is up to us. Instead of a global free market threatening to descend into a global free-for-all, we must reshape our global economic system so that it reflects and respects the values that we celebrate in everyday life. For I believe, that the unsupervised globalisation of our financial markets did not only cross national boundaries, it crossed moral boundaries too.”
Since October last year we have seen the dramatic collapse or bail out of global monoliths such as the Royal Bank of Scotland, AIG, Merrill Lynch, General Motors and many more. “The reverberations across the broader financial system continue today, affecting the lives of working people across every corner of God’s Earth”, Prime Minister Rudd said.
Leaders of nations states will seek to achieve a concerted action to this global challenge. There is agreement that the “shadow” banking system, of hedge funds and private-equity vehicles, needs to be properly regulated, but just who should be the regulator is disputed. That means the job is likely to be left to national governments, placing pressure especially on President Obama, who is already finding it difficult to persuade Congress and Wall Street to accept his Administration’s proposals for acquiring and sequestering the derivatives and other toxic assets that triggered the crisis.
The sharpest disagreement will be over the need for fiscal stimulus to revive deflating economies. Australia, the US and Britain have already put stimulatory measures in place, but French President Nicolas Sarkozy is dubious and German Chancellor Angela Merkel, perhaps with Germany’s hyperinflation of the 1920s in mind, is resolutely opposed.
However, Gordon Brown warned during his address “Without transparent rules to guide them, free markets can reduce all relationships to transactions, and all motivations to self-interest.”
The direction that we, as citizens of a global community, want is a free but fair market. A market that is socially responsible, a market that brings balance, a market that is just. Prime Minister Brown commented: “Most people want a market that is free, but never values-free, a society that is fair but not laissez faire. Across the world, our task is to agree global economic rules that reflect our own enduring values. That means rules that make transparent the risks that banks take, rules that bring hedge funds and shadow banking inside the regulatory net, rules that force global banks to hold sufficient capital and ensure their liquidity, rules that require boards who understand their businesses and take responsibility for the decisions they take, and systems of pay and bonuses that reward people for long-term value and not short-term risk taking. This is the world in which we will have trust, and in which we can genuinely say again, ‘My word is my bond’ (this motto was formerly inscribed on the coat of arms of the London Stock Exchange in 1923).”
Gordon Brown added that there is a shared global ethic that can lie behind global rules. He simply said: “Through each of our heritages, traditions and faiths, there runs a single powerful moral sense demanding responsibility from all and fairness to all. Christians do not say that people should be reduced merely to what they can produce or what they can buy – that we should let the weak go under and only the strong survive. No: we say, ‘Do to others what you would have them do unto you’. And when Judaism says, ‘Love your neighbour as yourself’, when Muslims say, ‘No one of you is a believer unless he desires for another what he desires for himself’, when Buddhists say, ‘Hurt not others in ways that you find yourself hurtful’, when Sikhs say, ‘Treat others as you would be treated yourself’, and when Hindus say, ‘The sum of duty is not do unto others what would cause pain if done to you’, they each and all reflect a sense that we share the pain of others, we believe in something bigger than ourselves, that we cannot be truly content while others face despair, cannot be completely at ease while others live in fear, and cannot be satisfied while others are in sorrow. I believe that we all feel, regardless of the source of our philosophy, the same deep sense, a moral sense, that each of us is our brothers’ and sisters’ keeper.”
Our own Prime Minister said it best when he concluded: “In the current economic crisis, the underlying truth is this. We are all in this together: governments and business, business and unions, individuals and communities, one nation with one another….Let us learn from history afresh. This crisis will test us greatly in the time that lies ahead…And if we are of sufficient courage to act together and for the common global good, then together we can craft a new feature for all human kind, not just for some.”