Review: Ethics and the economy

In our November meeting, we were very pleased to welcome Christine Berry from the New Economics Foundation to lead us in a discussion about ‘Ethics and the economy’.

NEF was formed over 25 years ago to challenge the right of what was then the ‘G7’ to speak for the economic future of the planet. It has since become one of the largest think-tanks in the UK and one of the leading organisations in the world to develop an economics which puts people and planet first. You can find out more about NEF here.
Christine joined NEF in January 2014 after being the Head of Policy and Research at ShareAction, a charity which promotes responsible investment by pension funds and other major institutional investors. You can find out more about ShareAction here.

Christine presented many ideas and issues to us and, during the vigorous but thoughtful discussion that followed, also helped answer our questions and help move our discussion forward. We had a good turn out and there were interesting and thought-provoking contributions from most members.

Christine has been kind enough to send through a summary of the main points in her introduction, along with some book recommendations that she mentioned during the course of the discussion. We would like to thank Christine for coming to speak to us, for engaging with our members and for this follow up.

Key issues raised for discussion

Mainstream economics claims to be a value-neutral science, but it is built on certain assumptions about how humans behave (for example, that we seek to maximise our individual ‘utility’, defined in terms of consumption of goods) and these assumptions have moral implications.

As well as being empirically questionable, this picture of human behaviour can be self-fulfilling: evidence suggests that economic structures and norms can themselves influence our values.

This applies in relation to corporations as well as individuals: while corporations have many of the same legal rights as individuals, it is often argued that they should not be expected to accept the same social responsibilities, since their duty is solely to increase profits for their shareholders. For example, many people defend tax avoidance schemes on this basis, arguing that business have no moral obligations beyond obeying the letter of the law.

But what does this mean for the distribution of power? In practice, deregulation since the 1980s has led to a concentration of power in large, internationally mobile mega corporations, which are increasingly difficult for national governments to democratically control or regulate.

For example, Nicholas Shaxson argues that the ability of multinational corporations to avoid tax has created a ‘race to the bottom’ as countries compete to attract these businesses by effectively turning themselves into tax havens. This means either that other parts of the economy are forced to take more of the burden of tax, or that public services on which the economy ultimately depends are eroded.

It is also worth asking who these companies’ shareholders actually are: even big institutional shareholders like pension funds ultimately represent the savings of individual citizens. Why do we assume that these individuals’ ethical views, or their interests as taxpayers, workers and consumers, are irrelevant when it comes to the companies they own through their savings?

There are many alternative ways of organising the economy – for example, promoting co-operative enterprises and local banking – but mainstream economic ideology often prevents these alternatives from even being put on the table.

Further reading

Michael Sandel – ‘What Money Can’t Buy: The Moral Limits of Markets’
Nicholas Shaxson – ‘Treasure Islands: Tax Havens and the Men Who Stole the World’
Lynn Stout – ‘The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public’
NEF – ‘Stakeholder Banks: Benefits of banking diversity’
Mariana Mazzucato – ‘The Entrepreneurial State’