An Ethical Economy?

Poverty in New Zealand, St Peters on Willis , Wellington, 17 October, 2011. (This followed a presentation by Stephanie McIntyre, the director of the Downtown Community Ministry.)

Keywords: History of Ideas, Methodology & Philosophy; Political Economy & History;

I want to begin by saying I have an enormous respect for Stephanie McIntyre, the team she works with, and the many teams in New Zealand and throughout the world, who deal with similar – often intractable – social problems. You need a temperament, an optimism and a faith to work in places like the Downtown Community Ministry, talents which I have not got. I deeply respect those who do, especially as it can be pretty grim down there.

Tonight I have been asked to put their work in a wider context. Pretending that the DCM is solving the problem is a nonsense. It is dealing with our failure as a society, providing an ambulance at the bottom of the cliff. I’ve been asked to look at the fencing at the top. We will always need ambulances, but do have to have so many wrecks for them to deal with? Cant we make the fence better?

In a context such as here at St Peter’s Church, my natural reaction is to start off with a biblical text. An obvious candidate would be the parable of the Good Samaritan. It is worth recalling that Jesus told the parable as a response to the question of who was my neighbour; his answer makes it clear to those in Judea that their neighbours included the Samaritans whom they treated as quite different people.

That is what Stephanie and her team are doing, accepting those who – one way and another – society has rejected. But while we need to reach out to those who have been mugged, do we have to have quite so many who suffer that fate? Can we reduce the amount of robbery on the road. Have we got the right political and social system? Is it providing enough fences?

This was an acute issue in the nineteenth century. Industrialisation and rural depopulation was causing social turmoil. Among the most important critics of, and conscience for, change were Christians of all denominations. Our social security system, which aimed to remedy some of the defects of capitalist society, was called ‘Applied Christianity’. You dont hear that expression much, do you, nowadays? Perhaps that is the problem; when people try to change our social welfare system, they forget its underlying principles.

That inattention to ethical principles in the modern economy is at the heart of what I want to discuss tonight. An economy is not a moral entity; economic development does not occur according to some fundamental moral rules. Morality has to be consciously introduced if we want to have a moral economy in a moral society. That is what our ancestors did in the nineteenth and early twentieth century.

How do they do this? In a modern society that is the function of democracy – to give moral guidance to the technical decisions. Christian dont have any collective competence in designing bridges, but they may be involved in determining where the bridge should go.

Oh I know that Christianity is no longer as dominant in as it was when – say – the social security system was introduced. And I know too there are people in this audience who belong to other faith communities, or reject them altogether. But all of you have a moral code, and when it comes to the public policy questions with which I am concerned tonight, there are is almost universal agreement. If I am using a Christian framework it is because of tonight’s venue.

But let us not ignore the differences. Islam tends to think differently about interest from Christianity. That is debate which I am happy to contribute to in another context. Tonight there is sufficient agreement on my main point: there is remarkably little public morality in economic management.

So here’s a question. What are the ethical principles which underpin the way we manage the economy? Of course there are some non-ethical principles which restrict what we can do – such as the laws of thermodynamics. There are the equivalents in economics: a simple one is you cant borrow – run a deficit – unless someone is willing to lend to you; if they think you have borrowed too much and stop lending to you, then you are going to have to live within your income.

Can we think of any ethical principles which we use in making decisions today about the economy? Not necessarily ones directly in the scriptures, but principles of which Jesus might have approved. For instance one of the reasons social security was called ‘Applied Christianity’ was because it was based on the principle that the young and the old and the sick would have first call on the resources of the community. I dont think that is explicit in the Gospels anywhere – it is implicit in the Torah and again you can find things like it in the Koran – but I reckon Jesus would have been comfortable with the principle.

One can observe, I think, in our human rights framework principles that Christians would be proud of, but what about economics? What principles are used to govern today’s economy, principles one might say are moral?

At this point I invited the audience to nominate ethical principles which appeared to apply in economic management today. The only one they could think of was that the whole economy contributed when there was a calamity like the Christchurch earthquake. It is the issue I develop shortly.

I cant think of any others either – which is interesting, isnt it? – especially if you follow the literature that argues that Christian attitudes were critical in the development of capitalism. Has capitalism got away from its foundations?

So I am going to tackle the issue the other way around. Let’s look at a policy which seems terribly important in the management of the economy, and ask how it relates to ethical issues. Because I have only limited time I am going to focus upon only one.

A principle that appears to be central in our public policy is that tax rates should be low and should be reduced overtime. There are a lot of complexities in this, but to illustrate consider the options the government had to pay for the almost $10 billion that the Christchurch earthquake has imposed on the public purse. At the time I raised the possibility that we should fund this horrendous cost by a levy of about 3 percent on income taxes – that would raise a 30 percent income tax rate to 31 percent, not a big levy but after about ten years it would pay off the cost of the earthquakes.

Apparently the government considered the possibility. A senior minister told me of two reasons why they did not implement it. The first was that they still could, although in my judgement the window of political opportunity has gone. Shortly after the most damaging of the quakes we were aching to show solidarity with our Christchurch brethren. I saw a reaching out to those who were suffering and a willingness to share the burden of their pain. It is still there but for the government to raise the levy would now seem opportunistic, as the second reason explains.

For the minister also said that having just reduced income taxes the government did not want to appear to reverse its direction. For the record I am a pragmatist on the level of tax; for me it is the means of raising revenue to pay for the collective goods and services that a community wants. If we need more, then taxes need to go up, if we need less, they go down. Apparently this government thinks they should be going down whatever. That is not a pragmatic decision, it is an ideological one.

Let’s look at it pragmatically. The government is committed to eliminating the public deficit by 2014. This is a technical decision reflecting its judgement of how much the world will continue to lend to us. The judgement may be wrong, but it is not an ethical one; I take it as a given.

But how is the government going to reduce the deficit? If it wont raise taxation, the deficit reduction will have to come from cutting government spending. Now you might say that some of those cuts are a good thing, you dont approve of particular programs or you think the program delivery is inefficient. Again we can discuss these as technical issues, and certainly we should make cuts if the program is undesirable while seeking to increase the efficiency of government delivery.

But we should pursue such cuts irrespective of whether there were those dreadful Canterbury earthquakes or not. The issue here is that in order to cover the costs of the earthquakes, what further measures are necessary above what we would do anyway? We have resolved that the costs will not fall entirely on the victims, although the effect of the government policies is that they may end up carrying a greater share of the burden than has been promised. Who is to carry the rest?

Rejecting the earthquake levy means that the burden of the earthquake is not being carried according to an ability to pay. Let me repeat that. The contribution to the public weal from income tax means that the better off make a greater contribution. When the government said it would not introduce the earthquake surcharge, it was saying that those with the greater ability to pay would not carry a greater share of the burden.

Instead the burden is going to be paid by further cutting government spending. In which case it is the beneficiaries of that spending who are going to pay for the burden of the earthquake. But are not the beneficiaries from public spending those who are in greatest need? There are some exceptions, but as a rule ‘yes’. Those who will suffer from the cuts are the young and their parents, the old, the sick and the invalids or marginalised in society like those Stephanie and her team work with. The environment – that is, the future – will suffer too.

Especially as we run up to an election, politicians will put their hands on their hearts and say we would not dream of charging the earthquake to these people. Dont reply with a ‘yeah right’, but ask who do they intend to carry the burden instead?

This opens up the debate on low taxation rates. Remember I am not opposed to low taxes as a matter of principle; but I am challenging economic managers whose policy is to lower taxes irrespective of circumstances.

They will offer various justifications, including arguing that low taxation increases economic output and economic growth. Whether it does is a technical issue; my review of the empirical evidence suggests that it if there is an impact from moderate tax levels on economic growth it is very small – too small for a scientist to be sure there is any impact. If there was scientific evidence, we would not be having these debates.

But suppose, just suppose, the tax level impacted on aggregate output. You are quite entitled to say – so what? Is the purpose of a society to maximise economic output? Didnt a couple of millennia ago a bloke by the name of Paul say something about ‘the love of money is the root of all evil’?

Paul may have been a bit extravagant, but he challenges us to ask what is the point of economic activity. On Thursday evening, I am reporting to the Fabian Society – at the sister church across the road, St Johns – that the empirical evidence is that above an income threshold, increases in material consumption dont have much effect on happiness or life satisfaction. Now you may want to challenge whether happiness and life satisfaction are the purpose of life, but I’d have thought those sort of objectives were closer to the ultimate purpose of being human than material consumption.

To make it clear: as a pragmatist, I know there are some benefits from increased material output, and some downsides too. But I dont think of consumption as an ultimate objective any more than I think lowering the tax level is an ultimate objective. By building economic policy around them we damage what we really value, we undermine the ultimate concerns we have.

Humankind is a social animal. We have had interesting confirmation in this from a book The Spirit Level by Richard Wilkinson and Kate Pickett. They report a mass of studies which suggest that societies with greater gaps between the rich and poor tend to have poorer health performance than those where the gap is narrower. (They also report – with less evidence – that high inequality is also associated with higher criminality.) We dont know quite what is going on in a causal sense; perhaps low inequality societies deploy their health resources more effectively, perhaps there is a physiological process involving stress which is higher in high inequality societies. Whatever is the mechanism it almost certainly involves some social processes, confirming that humankind is a not an isolate but lives in a community.

As John Donne said:  “No man is an island, entire of itself; every man is a piece of the continent, a part of the main … any man’s death diminishes me, because I am involved in mankind and therefore never send to know for whom the bell tolls, it tolls for thee.”

That is why we were moved by the sufferings from the Christchurch Earthquake, by the sufferings of the sort of people that Stephanie and her team look after, why we support the spending of $500 million a year on cancer treatment, and so on. It is not simply ‘there but for the grace of God go I’. After all it might be more commercially efficient to insure yourself against such eventualities. But that is not what we are concerned about; we are concerned to reach out to our fellow human beings. Sometimes we do it professionally as Stephanie and her team do, sometimes we do it individually as when we make a charitable donation or help an old lady across the road, but we also do it communally through the state and other collective agencies, especially when these more private decisions are unable to give the community response we desire.

Taxation is a way we empower the state to act upon our behalf. As we lower the tax take we reduce the power of our ability to act a community. That is the danger of making tax reductions a fetish.

Taxation is not the only way we empower the state to act on our behalf, although it is the only one I have had time to deal with tonight. Rather than trying to list all the other ways, I want to ask what we can stop the crippling of society from economic policies which are not anchored in human principles?

We have lost our moral compass; we debate and program economic issues ignoring the ethical underpinnings. The faith communities remain the major custodians of that compass. Surely they, and others of good ethical will, should be holding the politicians and the technicians to account by asking what are the ethical principles underpinning the policies they advocate.

Dont engage with them on the technicalities of their policies. You dont have the expertise to do this, and you will be sucked into the amoral morass that these technical debates thrive upon. (And for these purposes, dont get tangled up in non-economic ethical issues, as important as they are in other venues. Jesus gave a lot more advice on how to organise society than he did on sexual conduct.)

Your comparative advantage is to scrutinise policies from an ethical framework. Actually it is an absolute advantage, for the technicians have virtually no knowledge about the ethical foundations of their policies. Initially they wont even understand the challenges you are posing, so morally autistic have they become; they will fudge. Persist.

Explain that you are not interested in their personal ethical standards – theirs are probably as high as yours. What you want to know is the moral foundations of their public policies. Insist that if they cannot explain their ethical principles in simple terms to a non-technician like yourself, they have no moral right to be recommending the policies they pursue.

Jesus said: “ No man can serve two masters: for either he will hate the one, and love the other; or else he will hold to the one, and despise the other. You cannot serve God and Mammon.”

Certainly we must harness Mammon to serve us and to serve God. But Mammon is in a subservient role not a dominant one, for there are higher principles. Is it not time for the godly to stand up for them?