Financial Crisis and Wealth Disparity: the Role of a Renewed Economic Culture

As part of the day dedicated to the financial crisis during the 4th Buddhist-Christian Symposium

Financial Crisis and Wealth Disparity: the Role of a Renewed Economic Culture

Presentation by Benedetto Gui

Chiang Mai (Thailand), February 4, 2010

People want meaning in their lives – the kind of meaning that comes only from knowing that you are doing your part to make our world a better place. … [This] is an aspect of human nature that is totally ignored in the existing business world.” (Muhammad Yunus, Creating a World without Poverty, p. 162).

 

“It must be remembered that the market does not exist in the pure state. It is shaped by the cultural configurations which define it and give it direction..” (Encyclical letter Caritas in Veritate, §36)

 

The recent financial and economic crisis has caused widespread pains around the world. The prevailing attitude in the present phase of the crisis is one of impatient hope that the recovery will come soon, so we can go back to the previous state of affairs.

 

However, we must reflect on what has happened. The spark of the crisis has been the burst of the speculative bubble of American house prices. If we go deeper, we find that behind the scene of the crisis there are structural causes, such as the systematic excess of consumption of US households and inadequate financial regulations. However, if we go deeper still, a crucial question resurfaces, one that is more pressing than ever: is there anything systematically wrong in the economic system we live in that we must fix?

In this presentation, I will first sketch the standard answer of economic science: a negative answer, accompanied by the admission that several features have to be modified. Then I will present the intellectual stimuli coming from the recent scientific literature on happiness, that leads us to a more radical stance, not so much at the level of institutions, but rather at the level of the objectives that are pursued by the economic system. This brings the economic discourse close to the teaching of great religions, among which Buddhism and Christianity.

 

Last, so our reasoning does not stop with mere wishes, I will briefly present the Economy of Communion project, promoted by the Focolare Movement. The EoC´s mission is the promotion of fraternity in economic life, combined with sound business practice. Its development has been accompanied by a ferment of ideas that I will briefly sketch.

 

I will conclude on the hope that the cultural attitudes that back this and the fortunate number of other ongoing experiments may permeate the whole economic system, reshaping it from within.

 
 

Strengths and weaknesses of the current economic system: the conventional view

 

Despite the diversity in national institutions, the significance of government intervention, and the presence of a private non-profit sector, the economic system that dominates the international scene can be simply identified as capitalist. Its main defining features are freedom of economic initiative, private property (of consumption goods, but also of land, houses, means of production, patents, brands, financial assets…), and markets (for all the items above, plus labour in all its forms).

 

Markets allow economic actors to make use of what they own – in addition to information, experience andingenuity – for obtaining benefits for themselves and, thanks to competition, securing benefits also for others. In addition, freedom of initiative is a desirable feature in itself; furthermore, it is hard to imagine how a democratic political system could endure in its absence

 

What about its weaknesses? They are well-known. I will mention only a few.

 

The crisis has laid great emphasis on the inherent instability of the financial economy and the real economy (output, sales, employment…), heavy effecting the lives of those who lose their jobs or see their revenues collapse.

 

Another source of market malfunction that has played a crucial role in the recent financial crisis is asymmetric information. When the buyer of a financial product does not know how risky this is, while the seller conceals this information, the most likely outcome is not mutual benefit, but expropriation of the former. The same goes for job health risks, for instance.

 

Another weakness whose impact on our lives is becoming more and more worrying, independently of the crisis, is that markets generate adverse outcomes when public goods are at play. Just think of  ‘global commons’ such as the atmosphere, the ozone layer, oceans, mineral resources,…,that are being exploited for private benefit, to the damage of all.

 

The worst adverse outcome of markets, however, is inequality. Even if markets worked at their best, the pie could end up being split very unequally, due to differences in initial endowments and the vagaries of chance. The more so in the presence of other market malfunctions, which tend to exacerbate disparities within and across countries, posing a threat to social cohesion and personal dignity.

 

The typical response to these market weaknesses is government intervention, in various forms: regulation, taxes and subsidies, public provision,… Despite its own weaknesses, this intervention has an important correcting role, as the crisis itself has shown.

 

All considered, it is hard today to imagine a promising radical alternative to the current economic  system. The main alternative of the 20th century, central planning, has failed severely, on various grounds. New proposals, such as those put forward by the theorists of the no-global movement, are in the end are more of a spur to rethinking current economic practices than full-fledged alternatives standing on their own.

 
 

Does the present economic system provide the goods people really need most?

 

I have ended the previous section on a pretty reformist note regarding present economic institutions. However, looking at the economic life from another perspective substantiates a more radical attitude toward current practices. Interesting stimuli come from the recent literature on happiness (a notion that economic science had nearly completely neglected).

 

In brief, the enormous amount of data collected and analysed tell us that income, or the volume of consumption, does not affect ‘subjective well-being’ to a great extent, and what matters most are comparisons with friends and neighbours, not absolute levels. Instead, more important determinants of happiness are: employment status (unemployment, it appears, hits its victims even when they receive generous social security benefits, as it deprives them of the opportunity to exert their faculties and play a recognised role in their social context), and family, friendship and associative relationships.

 

Furthermore, happiness seems to be impaired by a “materialistic” orientation (i.e. giving priority to the achievement of wealth and success), and favoured instead by a “non-materialistic” orientation (i.e. caring for others and pursuing worthy causes).

 

In sum, the recommendations for attaining a good life that come out of happiness research are quite distant from the common view that appears to dominate the academia (especially within economic science), the business community, the mass media, and a large share of ordinary citizens, at least in Western (or westernised) countries.

 

Indeed, in the West, but not only there, the evolution of the economic system we live in has been accompanied, characterised, and favoured by a certain view of the world that can be briefly described as individualistic, materialistic, and pragmatic. A momentous challenge of our epoch is to ‘disengage’ economic life from those cultural traits, so it can better serve the ‘human flourishing’ of human beings. Interestingly, the alternative values that are highlighted by happiness research have a lot in common with those of ancient philosophers and great religions.

 

I have limited knowledge of Buddhism. However, I have encountered some traces of its economic philosophy in the works of a few Western writers who were influenced by it. In particular, I mention Ernst F. Schumacher, the author of  “Small is beautiful” (1973). In Ch. 4, entitled “Buddhist Economics”, he noticed how unsuccessful the Western economic model was in securing happiness to its citizens, despite the enormous amount of resources it devours, and compared it with the parsimonious but happier life he had observed in Himalayan villages.

 

Not surprisingly, I am more informed about the Social Doctrine of the Catholic Church in this regard, but I do not have time to even summarise its contents, so I move straight to the economic practices and ideas of the Focolare Movement.

 
 

Economic practices and ideas of the Focolare Movement

 

Since its beginnings, its members have considered extreme poverty and inequality incompatible with the logic of mutual love and universal brotherhood to which they adhere. Indeed, the most tangible aspect of the life of the first community born around Chiara Lubich, in 1943, was a spontaneous flow of goods: people who had more than they needed gave to the many poor of the city of Trent who had been impoverished by the war. The practice of sharing has become a characteristic of the life of the Movement, and is called “communion of goods”: those who have a surplus make it available for responding to the needs of others, and those who do not have enough share their needs, ready to give in their turn as soon as the opportunity comes.

 

The engagement of the members of the Movement in economic life has extended to participating actively and positively in institutions such as firms, trade unions, public administration,…and to creating a number of ‘social initiatives’, especially in low income countries, with special concern towards building unity among people.

 

A significant jump forward was Chiara Lubich´s launch of the Economy of Communion (EoC) project in 1991. Struck be the wide inequalities of the Brazilian city of Sao Paulo, and knowing that there were members of the Movement both in the poor and the rich districts of the city, she advocated the creation of enterprises whose profits would be destined first of all to the benefit of those who could not feed their families, have access to a decent home, get a job, send their children to school, or cure their illnesses. With the conviction that facts and ideas go hand in hand, she suggested that a second part of those enterprises´ profits be destined to the development and diffusion of a “culture of giving” and of sharing. She meant that, without such a culture, the huge inequalities of our times cannot be reduced, and even more importantly, unity among the “haves” and the “have-nots” cannot be built. Last, the remaining part of profits should be destined to strengthening the enterprise, so it can continue to create wealth.

 

This appeal has been followed by some 700 entrepreneurs (or groups of them), most often small family businesses but also including significant exceptions. In many cases, new enterprises were formed, often by young people who most likely would have never started a conventional enterprise. In other cases, pre-existing companies were reoriented according to the project. Beside profit destination, a key feature is the pursuit of fraternity (or “communion”) in all their business practices (taking into account the needs and the aspirations of each worker, or customer; establishing frank and friendly relationships with them; complying with the law and tax duties; respecting the environment; transforming their leadership style, so decisions will be more and more shared, following the logic of unity;…).

 

Also, distribution of profits to people in need is to be done with the logic of fraternity and reciprocity. Up until now, most beneficiaries are somehow involved in the Focolare Movement and distribution occurs through its informal channels. More recently, we have ventured beyond immediate help and financed small productive investment for micro-enterprises start-ups; furthermore, some of the profits have supported development projects to the benefit of communities wider than the sole members of the Movement. In addition, some of the enterprises have poor people as customers, workers or suppliers, and are purposely managed so as to benefit them.

 

Looking back after almost 20 years, the EoC project:

- has put into motion a chain of solidarity, attributed by proximity and fraternity, that has reached a few tens of thousands of recipients. A large fraction of these have thus received a decisive push in their effort to overcome acute economic problems or to attain full self-sufficiency;

- has enlightened the professional lives of thousands of people with a surplus of motivation and meaning. This begins with the entrepreneurs themselves (an example is a French entrepreneur in his sixties who found a new reason for engaging his energy and talent in helping establish the first “business park” of the EoC project, near the  Movement´s small town near Sao Paulo);

- has given rise to some ten business parks (a few of them just started), where some EoC enterprises work side by side, thus making the project more visible and forming a privileged laboratory for experimenting new business ideas and practices;

- has involved thousands of customers, suppliers, financiers, and even competitors in a logic of mutual respect, openness, and care – to the point of fraternity (Just a few days ago, I was reading the story of an Argentinean businessman who has granted his help in a difficult moment to a competitor who in the past had behaved unfairly towards him).

The list above does not include an effect that I consider no less significant: witnessing in front of public opinion, the business community and economic scientists that the administration of an enterprise can be reconciled with a logic of fraternity.

 

Indeed, contact with this network of enterprises has been a great source of inspiration for a group of scholars who have dared to bring previously extraneous notions into economic analysis, such as  fraternity (an article in which this word appears in the title has been recently published on an international scientific journal), or ‘relational goods’ (the intangible entities that are created and consumed in personalised interactions: mutual recognition, “company”, fun,…). A third idea is that deprivation is usually associated with poor relationships within the family, or in the surrounding community. The immediate implication is that unless internal and external relationships improve, the economic situation of those people can hardly get better; and conversely, if the former improve, the latter is also destined to improve.

 

This scientific work is part of a wider trend in economics that, more and more, is abandoning its narrow assumptions on human nature and its traditional disregard of important social phenomena.

 

Conclusions

 

There is an institutional answer to the deficiencies of the capitalist economic system, in particular its ruinous instability and the extreme inequalities to which it leads: correcting some of its rules and institutions so the worst outcomes will not be seen again. This road must definitely be pursued.

 

However, there is another road, which I have tried to outline in this talk. It consists in inoculating new seeds into the economic system’s cultural and anthropological basis. The fact that alternative logic and values can find a place in economic life is witnessed by numerous experiences - such as fair trade, ethical finance, microfinance, social businesses,…, and the Economic of Communion project, that lays special stress on fraternity. These views are also supported by a wide cultural ferment.

 

If these tendencies will grow and permeate the whole economic system, its working will be transformed from within, partly as an effect of changes in individual behaviour, partly because new convictions will certainly bring about institutional changes. (At this point the two roads meet.)

 

This latter road I have sketched needs time and perseverance. It lends itself especially well to persons and communities – I am thinking in particular of those that are represented in this room - that have a strong spiritual heritage.

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