Sunday, May 30, 2010

Will Capitalism survive from immoral behaviour?

The OECD ministerial meeting (27-28 May) includes in its final declaration the following statement: 'The depth and breadth of the crisis has demonstrated the need to strengthen our commitment to fundamental principles of propriety, integrity and transparency. Our future growth and stability should be based on a commonly shared set of principles underpinning international economic and financial transactions'.

Launched as a concept by the Italian G8 Presidency in early 2009, the Global Standard aims to develop a set of common principles and standards for propriety, integrity and transparency in international business and finance.

In the G8 Declaration "
Responsible Leadership for a Sustainable Future" adopted at the L'Aquila Summit, G8 Leaders agreed on the objectives of a strategy to create such a comprehensive framework, the “Lecce Framework”, and to "make every effort to pursue maximum country participation and swift and resolute implementation".

The significance of this declaration is not only rhetoric. It is much more profound if we look from a historic perspective. Capitalism wants to build a moral society from immoral behavior. Political leaders are afraid of the consequences on the public opinion of the financial meltdown caused by the banks gambling with other people's money. In the US, part of the middle class has lost their houses as they could not pay back their mortgages.

In fact, some blame Wall Street for its greed, hubris, and stupidity. But free market economists will argue that this has always existed. Russell Roberts, a professor at George Mason university in Washington argues that " public policy decisions have perverted the incentives that naturally create stability in financial markets and the market for housing".
Free market supporters will support the idea that markets are always efficient and that new regulations are harmful. They prefer non binding rules such as the ones discussed in the OECD framework, with some exceptions such as the offshore places.

Capitalism is to blame because it is unstable and when crises occur, unemployment rises and inequalities tend to grow dramatically. This is Keynes' philosophical conclusion of his General Theory** in defining the foundations of an 'ethical' economy: "The outstanding faults of the economic society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes" .

  *Chapter 24. Concluding Notes on the Social Philosophy towards which the General Theory might Lead

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