By Lord Griffiths of Fforestfach — Vice Chairman, Goldman Sachs International — December 9, 2020
The Swiss city of St. Gallen was founded by the great Irish saint, Gallus, has an outstanding University and is located in beautiful countryside of the Appenzeller region of the country. For me it has become a special place. I first attended the St. Gallen Symposium held on the university campus sixteen years ago, as a participant in a debate with Joshka Fischer, who was then the shadow German foreign minister. It was a debate I relished. I spoke second and having listened to Fischer’s argument decided to throw away my prepared notes and pick up the gauntlet which he had thrown down. Since then I have been invited each year to co-chair the symposium which has been a great honour and pleasure.
One reason I love the Symposium is that it is multi-disciplinary. It brings together people from the worlds of business, politics, academia, science, sociology, philosophy, international relations and even theology. It grew out of the student revolt of 1968 in Europe when student protests led to violence on the streets of European cities, conflicts and dissention within universities and some universities being closed for a period of time. I was then a young lecturer at the London School of Economics. We experienced the first student protest in the UK which led to the School being closed for six weeks in 1969, something unheard of until that time in an institution which espoused a liberal approach to learning. The events of 1968 forced politicians, business leaders, public intellectuals, writers and students to ask profound questions about the values of the society as well as its future.
For me St. Gallen stands for a liberal economic order, democratic political institutions and a civil society made up of many different kinds of institutions and associations. These give stability and vitality to society while at the same time reaching out to those in need. It is because of my commitment to these values that I have continued to accept the honour of being invited to chair the symposium year after year.
An Axial Point for Modern Capitalism
However the financial crisis has cast a shadow over the ideals for which the University and the St. Gallen Symposium stand. It is the worst crisis since the Great Depression of the 1930’s. It is now six years since the crisis happened and we have not yet fully recovered from its consequences and in some countries GDP is still below its 2008 level.
I believe the crisis is proving to be an axial point for modern capitalism.
It is impossible to understand the crisis simply by looking at the events of 2007 and 2008 or even the years immediately preceding them. The crisis followed three decades of globalization which led to a steady year-on-year increase in global prosperity accompanied by a remarkable reduction in extreme poverty especially in China. These were years of extraordinary political change: the fall of the Berlin Wall, the collapse of Communism, the rise of militant Islam, the emergence of the BRIC’s economies and the shift of the global economic centre of gravity from West to East. They were years which witnessed a remarkable revolution in technology – in computing, information technology, biotechnology, nanotechnology, fuel and energy technology and new materials technology.
Despite these trends, the crisis has undermined confidence in capitalism. The policies of austerity which were introduced have proved painful for most people. The crisis has highlighted the growing inequality in the distribution of income in all Western countries which has taken place over the past four decades. The best measure of overall inequality in society, the Gini coefficient, has increased in all Western countries significantly. (The irony is that inequality has decreased as a result of the recession but only because the income of the top 2% has fallen and welfare payments to the lowest income group has fallen less). The slogan of the Occupy movement, we are the 99%, resonates way beyond the protesters in Wall Street or the City of London. The two major drivers of inequality over the past 40 years have been technological change and globalization. New technology has created new jobs but they require specialized training and technical expertise. The excessive compensation of the bubble years in banking is a further factor driving increased inequality.
Despite the remarkable success of its initial establishment, the Euro has thrust poverty and suffering onto the citizens of peripheral Euro countries and these in turn have led to the growth of political extremism and violence on the streets of their cities. The surge of enthusiasm which greeted the Arab Spring has been transformed into the nightmare of violence in Egypt and Syria. The growth of the social media has meant the flourishing of individual involvement in political debate but at the same time by-passing its traditional institutions. Through leaks of intelligence information the social media now has the capacity to undermine the safety of our citizens and the freedom of our way of life so that we are increasingly vulnerable to terrorist attack.
The financial crisis has resulted in a loss of confidence not just in banking but in business in general and capitalism itself. Through continued revelations of dishonest behavior in financial institutions, such as the Libor scandal, the mis-selling of financial products and money laundering, opinion surveys have shown the extent to which trust in banks has been eroded. The problem is not confined to the financial sector. In China pharmaceutical companies have been charged with bribery and corruption. In Brussels investigations are being conducted into cartel price-fixing in oil markets and financial products. In Washington investigations are taking place into price fixing in the foreign exchange markets. In the UK energy companies have been the focus of political debate because of the scale of price rises.
While the peoples of Western Europe value prosperity and political freedom there has been a question mark over capitalism. Intellectuals, writers and artists have often distrusted capitalism. Capitalism today is perceived by many as an engine driving inequality in the distribution of income and wealth, cyclical instability in economic activity and because of its relentless pursuit of profit, a threat to the environment and the sustainability of the planet. For many younger people, the issue of climate change touches on integrity (evidence versus denial), courage (change can be frightening) and trust (the responsibility of leaders) collectively. For politicians the animal spirits which drive growth, profit, innovation, speculation and potential devastation seem impossible to tame. The response to all of this is inevitably the dead hand of regulation. Each new problem requires a new piece of regulation. At the same time government itself has become dysfunctional in many Western countries epitomized by the seemingly unimaginable sixteen day shutdown of the US Government.
The Role of Religion
Within Western countries, we have seen the increasing secularization of our societies. Unlike many parts of the world where religion is growing, in North West Europe and the North East states of the USA religious practice is in decline. However, religion has been an, if not the, important traditional source of values in our societies. The Judeo-Christian faith has been the basis of our belief in the rule of law, the dignity of the human person and the growth of democracy. It has been the foundation of enterprise, innovation and the market economy. It has fought for freedom but also campaigned for social justice.
Religion has stressed the values of personal responsibility hard work, honesty, keeping one’s word, respect for others and family life. These are values and habits of thought which have been taught from a young age and are crucial to the formation of character. They are in marked contrast to the values libertarianism or Marxism. They are not simply rules of ethics but habits of the heart. For economic life the important point is that they do not spring from within a market economy or a free society but come from outside of it. The values have roots which are nourished by religious beliefs, even though these beliefs may not be held with the same conviction as in previous generations. We should not forget that Adam Smith who was a Deist published The Theory of Moral Sentimentsbefore he wrote The Wealth of Nations. It was necessary for him to set out a moral basis for economic life before exploring the prosperity which resulted from the freedom of markets and trade.
Social capital may take time to wear out but eventually it does. Even in economic life. The financial crisis although economic in nature has highlighted a more general set of problems facing Western societies the most important of which is the sources of values which have historically provided us with freedom and order. What sources of values can we count on going forward?
Grounds for Hope
Despite the current disillusion with capitalism I am not a doom-merchant, defeatist or a pessimist. As a Christian I am a person of hope, which is not the result of some fanciful make believe but is grounded in the incarnation of God made man in the person of Jesus Christ. There are challenges to be met but I believe that today’s younger generation have the spiritual and material resources to rise up to meet them and the courage and fortitude to do so, if they so choose.
My starting point is that we cannot turn back the clock. In any case there would be little point because there was never some golden age which historians could account for which we could label the good society. There have been few generations which have not seen its share of conflicts, economic instability or social disruption because of rapid technological and social change. In any case even in the more tranquil and prosperous periods of our history there was always hypocrisy.
One reason for hope is that people have begun to recognize that the financial crisis was more than a technical problem, comparable to some gigantic motorway pile-up, brown-out or systems failure. It reflected an extraordinary collapse of standards in certain financial institutions and markets as well as a sad reflection of a me-first, hedonistic, libertarian culture. As we deal with the crisis we have been forced to recognize the importance of the social framework of the free market, the cultures which pervade banks and businesses and the values of the persons who work in them. All these traditional economics has largely ignored. This is important because it means that the crisis cannot be addressed simply by a technical re-engineering of the financial system or by implementing some new economic programme. The way forward must reach far deeper than this to the sources of values in our society, something which is ultimately beyond the reach of politicians.
The importance of this broader context in which economic activity takes place has been highlighted in the past by numerous writers and scholars such as Wilhelm Rὃpke in The Humane Economy 1958, Daniel Bell a Harvard sociologist in The Cultural Contradictions of Capitalism 1976 and Friedrich von Hayek in his Epilogueto Volume III of Law Legislation and Liberty1979, entitled The Three Sources of Human Values. This last is particularly interesting because Hayek is viewed as the foremost advocate in the twentieth century of the free market economy. Hayek argued that a market economy depended on certain values which were indispensable for its existence. He rejected the views of sociobiologists that there were only two kinds of human values, namely, nature (genetically determined and innate) and reason (values as products of rational thought).
He proposed a third, namely that human values had evolved through a process of cultural evolution. He believed that this had produced an ethos “that esteemed the prudent man, the good husbandman and provider who looked after the future of his family and his business by building up capital, guided less by the desire to be able to consume much than by the wish to be regarded as successful by his fellows who pursued similar aims.” However this culture was now under attack from two powerful sources namely the ideas of Karl Marx and Sigmund Freud: Marx by arguing for a planned economy with a just distribution of income determined by the state and Freud by his advocacy of freedom from repressive conventional morals, the need for permissive education and the rejection of the distinctions between right and wrong, good and evil. For Hayek these two intellectual errors risked undermining the cultural foundations of our civilization based on values such as self-discipline, honesty, fairness, moderation, public spiritedness, respect for human dignity and firm ethical norms.
The recognition that the issue of values and culture matter in economic life is I believe one reason for the respect given to statements and encyclicals by religious leaders such as Pope Benedict XVI and Pope Francis, the Archbishops of Canterbury Justin Welby and Rowan Williams and Rabbi Jonathan Sacks. All have stressed the importance of the human person rather than the economic system as the centerpiece of economic life. All have also argued for the need for values to underpin sustainable and effective markets and the importance of fairness and justice in economic life. Concepts such as ‘meaningful existence’; ‘human flourishing’ and the ‘common good,’ all make sense as reference points in contemporary debate because they combine insights from Classical and Christian thought, and appeal to believers and agnostics alike.
At a less elevated level, a further reason for hope has been the way banks and regulators have responded to the financial crisis. They recognized that a new regulatory structure is necessary to deal with the pace of innovation which has taken place in financial markets. The nature of this structure is a highly technical and complex subject, but at its simplest level this new regulation will separate retail from investment banking, restrict proprietary trading and through the Basel system of bank regulation introduce new capital and liquidity requirements as well as a framework for the structure of compensation. Although there are limits to what financial re-engineering can achieve a changed regulatory structure is essential for the future stability of the banking sector.
What is particularly interesting however is the attention that regulators and individual banks are devoting to the issue of banking culture. Culture has been defined as “the way we do things around here” or “what we do when nobody is looking.” At the time of the crisis nearly all major banks had mission statements or business principles emphasizing honesty, integrity, fairness, clients come first and respect for the individual person. However, a point regulators have repeatedly emphasized is that the values agreed in the boardroom did not drill down to the trading floor or the sales staff of banks. This cannot be tackled just by new regulation or new systems of control but challenges the culture of banks.
Vocation and Responsibility
In emphasizing the importance of culture banking must also become recognized as a vocation, a profession with high ethical standards, which implies a concept of responsibility, rather than simply a career or a way of making money. The notion of responsibility raises questions. For what am I responsible in my daily work? Am I responsible simply for the execution of the particular tasks which I am required to perform? Or do I have responsibility for what my business unit does? Do I have a responsibility for the business as a whole? What responsibility do I have for the sector in which I work? If I know colleagues are acting unethically what should I do? What are the limits of my responsibility? When do I have a moral responsibility to speak out? In the light of the false declarations in making sub-prime loans, the false statements of Libor rates and the mis-selling of various financial products these are questions which will have surfaced for many people in the financial world over recent years.
One person who wrestled with this problem was Dietrich Bonhoeffer. Indeed it cost him his life. In his book on EthicsBonhoeffer argued that responsibility is an essential part of a sense of vocation and then set out to explore the implications of what this meant by considering the duties of a physician. A physician has a clear responsibility at the bedside of a patient to care for the patients’ needs. But does she not also as a physician serve medical science and truth in general? What if medical science or human life were to be threatened by government legislation? Would she have a responsibility to speak out publicly and take action? Bonhoeffer resolves these dilemmas by arguing that it is only if she took responsibility for the whole that she would really fulfill her calling as a medical doctor. Vocation implies responsibility of the whole person for the whole of reality. It is impossible to restrict one’s responsibility to a narrow definition of one’s professional duties, what he calls “the limited field of accomplishments.” Indeed for him any such restriction would be irresponsible.
I believe we need to rediscover in our generation the implications of banking as a vocation and the responsibilities which it entails. One can only speculate what might have happened in the run up to the crisis in the bubble years if this had been the prevailing concept of responsibility.