Homeless Person and Pedestrian in front of fancy Prada store front.

The Cultural Challenges of Capitalism

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.

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