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Economics in a Well-Organized Society

"The normative logic of the market defines the political ratio, no longer the political-ethical ideal of a well-organized just society of free and equal citizens. The free market, not the free citizen, is made into the supreme aspect of economic and social policy..Is this to everyone's advantage? Reality often appears different. Winner takes all is ultimately the motto of boundless competition." translated from the German

The Perspective of Economic Ethics

By Peter Ulrich

[This address is translated from the German on the World Wide Web, www.kath.de/akademie/rahner/vortrag/ulrich/p02.htm. Peter Ulrich is professor of Business Ethics at the University of St. Gallen, Switzerland and author of Economics in a Well-Organized Society, Integrated Economic Ethics (2000).]

"The freedom of society on trial" is the theme of this lecture series. The "uncontrolled" and sometimes rather "stubborn" dynamic of economic rationalization is the decisive challenge of a well-organized "free society". Among the practical constraints of the (advancing) globalization of the market and the ever harsher competition, the creative power of politics is increasingly shriveled, the enlightened ideal of the greatest possible equal real freedom for everyone. Instead politics is often instrumentalized for emphasizing the economic conditions of the "international competitiveness" of the private economy in which not much more is private than property relations. The normative logic of the market defines the political ratio, no longer the political-ethical ideal of a well-organized just society of free and equal citizens. The free market, not the free citizen, is now implicitly or explicitly made into the supreme aspect of economic and social policy. Consequently the concrete "free society" develops toward the questionable model of a total market society in which only what is economically rewarding counts, supposedly to everyone's advantage. To everyone's advantage? Reality often appears somewhat different. "Winner takes all" is ultimately the motto of boundless competition.

All this is well known. I'd like to encourage your reflection on these processes. This is a very practical starting point of scientific effort. If science can influence praxis and policy, it is with the power of argument questioning current thought patterns and the definitions of key concepts. The way of thinking and speaking about the problematic relation between the rational idea of a free society and the effective neoliberal programmatic of the deregulated free market proves to be rather strange. What some enlightened contemporaries see as influential circles welcome a possible epochal endangerment of the achievements of the liberal-democratic society as the solution to nearly all present economic and social-political problems. "More market" is the general prescription of these circles, bound with the unconditional readiness to stylize and accept all practical consequences of such market radicalism as inevitable, whether the increasing pressure in the world of work to which more and more people are not equal, the scandal of supposedly unalterable mass unemployment, the widening gap of income and assets and the symptomatic consequences of "third-world-ization", the social disintegration of society or the irresponsible destruction of the environment for later generations.

According to my central thesis, we face ideological conceptual pressures more than real practical constraints or necessities. Many so-called "leaders" in the economy and politics really believe that everything will be good if we only allow the "invisible hand of the market" (Adam Smith) to accomplish its beneficial work. A crypto-religious market fundamentalism or market idolization is involved which is rooted in deep natural law convictions. Without it, the triumphant message of neoliberalism in the form of an ultimatum sweeping aside every alternative social orientation would hardly have any real political authority which it has worldwide today as a great ideology. The Enlightenment is wounded here!

Our intellectual strength and political will could reconsider and stubbornly insist on the primacy of political ethics before the logic of the market under changed conditions for the sake of the good life and just cooperation of free citizens. Giving orientation for political action and contrasting a sustainable model of a life-conducive market economy to the tendency to the total market society and giving orientations for political action are crucial. For ten years we have witnessed a "boom" in economic ethics and a renaissance in political ethics.

If my diagnosis of the challenge of liberal society - understood as a well-organized society of free and equal citizens - is correct, this has systematic consequences for modern economic ethics. Economic ethics cannot be understood as a moral corrective external to the practical logic of the economy or an "antidote" against too much "economic rationality". Economic ethics also cannot be seen functionalistically as only a useful "lubricant" for more economic (system-) rationality or efficiency under existing free enterprise "conditions", thus reducing it to "pure" moral economics. In the two conventional initiatives of economic ethics, the starting point is not questioning empirically-given "free enterprise conditions" or considering ethical claims in the context of the practical constraints of the market economy.

The normative is always hidden in the anonymous (and regarded as impartial) economic "practical (constraint) logic" of the free enterprise system! The logic of our economic system appearing as a practical necessity must be illumined critically and set on a supportive "normative foundation" in our economic philosophy. Establishing a different understanding of economic rationality or rational economics is central. Only with a rational ethic of the economy unconditionally critical of foundations can we gain orienting ideas for adjusting the unfettered and stubborn (if not absurd) economic rationalization dynamic to life-conducive social economics restrained by the guardrails of a "vital politics". In this perspective, economic ethics can be understood as a fragment of political ethics. The primacy of ethics and politics must be safeguarded before the highly effective logic of the market.

This integrative initiative consists of three systematic projects of economic ethics:

1.criticism of supposedly "value-free" or "value-neutral" practical economic logic and its normative exaggeration to economism;
2. Clarification of the ethical aspects of a life-conducive economy; and
3. Identification of "places" of morality of economics in a well-organized society of free citizens.

In the following, I will only sketch these three basic projects. All three mental steps involve historical backgrounds, irrational consequences for practical life and the fascinating present discussion of political philosophy. "Orienting ourselves in thinking" to paraphrase the whole intellectual challenge with Kant was never comfortable or convenient. New unconventional thinking always runs against traditional thought patterns. Let us first focus on the conventional economic practical logic.

Economism criticism or "Demystification" of the Metaphysic of the Market

Economics was primarily reflected under practical ethical aspects during the 2000 years from the ancient Greeks (Aristotle) to the classical authors of the modern political economy. What was uppermost was the instrumental role of the economy for the good life and just cooperation of humanity. The economy was conceptually embedded in the model of a well-organized society and derived its normative orientation from that model. The founder of modern economics, Adam Smith, was an important moral philosopher. Smith's liberal economy was political economy with a moral-philosophical goal. The neoclassical revolution around 1870 changed everything. Most economists refused to be moral philosophers or pursue political economy any more but sought a value-free theory formulated according to the natural science model. The strange self- (mis) understanding of the discipline as "autonomous" or "pure" economics arose which still dominates. A changed experiential background in practical life was mirrored there. The academic reflection of an economic system largely independent of practical life that increasingly only follows its own stubborn "internal logic" is the attempted justification of an autonomous economics.. Neoclassical mainstream economics now understands itself as a "pure" system economics that only analyzes and explicates the functional logic of the free enterprise system, the logic of competition and profitable exchange on the market. Pure system economics can and will have nothing to do with a social economy that scrutinizes economic conduct as to the good life and just cooperation of humanity. Pure system economics is totally estranged from its mother discipline, moral philosophy, competent for ethical questions.

The systematic consequence of the neoclassical turn is the peculiar two-worlds-conception of a pure economics imagining itself value-free on one side while ethics is seemingly totally irrelevant on the other side.

Gerhard Weisser was the first to recognize the root of the exaggeration of economic logic into an ideological economism absolutizing itself:

"Economism describes an independent `economic' sphere alongside the `social' and `cultural' spheres'. This is a false idealization."

The methodological tendency or pressure of pure economics resulting from independence of pure economic categories and exclusion of reflection on the normative presuppositions of the rational economy, justifying itself "purely" from itself and despising the instrumental character of the economy as a life-conducive means is doomed to failure from the start. This economistic circle is manifest when practical economic recommendations are made from a supposedly "pure economic viewpoint" (Weisser).

"How do postulates for economic policy arise? One widespread opinion today is that postulates on forming economic life can and must be gained from our economic thinking. (... ) This opinion could be called economism."

In the signs of the radical market neoliberalism of "Thatcherism" and "Reagonomics" since the 80s, economism, this belief of the economic ratio in nothing other than itself, was given an importance as a political ideology since the 80s which Weisser hardly regarded possible. Economism appeared in two variants complementing each other and resisting all non-economic aspects of economic life: the empiricist variant of practical constraint thinking and the normative variant of a metaphysic of the ideal market. This can be paraphrased as follows:

"Global free enterprise competition forces us... " (practical constraint thesis), "... but ultimately serves the well-being of everyone" (common good fiction of market metaphysics).

In the age of the globalization of markets, the subordination of all "vital political" aspects oriented in the good life and just cooperation of humanity is emphasized under the aspect of international competitiveness. What threatens de facto and is already underway, a boundless (deregulation-) competition of locations and national economic conditions and the primacy of the pure logic of the market before (ethically oriented) social policy, can also be described metaphorically: the economistic goat is made the public gardener.

Whoever thinks economistically in this way will be deaf for economic ethics arguments because he believes that he assumes an ethically good orientation for action appears by strictly following the "signs" of the market. The economist imagines himself in possession of a magic funnel harmonizing all conflicting values and interests around the economy to a single interest-neutral "formal goal" serving the public interest by itself without any effort of practical reason by the citizens. This formal goal - oh marvelous ideal world of Nirvana Economics! - is incidentally identical with the principle of the maximization of private advantage or profit...

Blinded by the magic spell of this autonomism, the economist does not see that this funnel runs like a sieve ("external effects" to one are "internal market effects" of unequal competitive power to another). Rational ethical aspects of a life-conducive economy can be seen when the market-fundamentalist belief in this magic simplification is "demystified" through criticism of economism. This criticism is only possible through critical reading of the dogmatic history of economic thought.

Aspects of a life-conducive economy: Economics means "creating values". What values are created for whom?

The play on words with "creating values" recalls the economic term "value creation" which is usually understood merely as a quantitative amount (value added) in the free enterprise system context. The technical mathematical term reveals its original ethical-qualitative meaning in the human context, in the question about the "value" of economics for the good life and just cooperation of humanity. Two elementary questions about a life-conducive economy result from the two goals of the good life and just cooperation of humanity:

- the meaning question: Which values should be created economically?

- the legitimation question: For whom are values created? How should the complex division of labor value creation ("benefits") on one side and the value dissipation ("costs") on the other side be justly distributed to all involved and affected?

The answer to the question of the meaning of economics ultimately results from the cultural project that we regard as good and healthful to our quality of life. The answer to the legitimation question follows from the political-philosophical model of the well-organized society that we consider justified (legitimate) and which establishes the social rules in which the economy is embedded. Judging or improving the "efficiency" of the free enterprise system only makes "sense" according to the accepted standards.

As to the question of meaning, the "vital" purpose of economics in covering the basic needs of all members of a political economy (food, clothing, housing, health care, education) may be hard to identify. The social meaning in this economy of necessities is the satisfaction of the basic needs of all members of society. A strict individual calculation of performance is no longer possible owing to the division of labor. Every product produced in division of labor is literally a "social product" requiring just distribution. Therefore the meaning question refers to the legitimation question. From time immemorial, a complex division of labor society understood itself as a community in solidarity. Seen this way, solidarity questions are tests of practical "efficiency" and of the socio-economic rationality of an economy.

Measured this way, the effectiveness of most "progressive" economies has declined alarmingly in the last ten or fifteen years despite or on account of an unrealistic, purely systemic economics described as "increased productivity". More and more people fall in existential uncertainty or find themselves without a job in a situation of economic self-assertion and structural powerlessness.

A highly productive life-conducive economy must increasingly enable all people to gain the necessities of life and realize their own cultural design of the good life.

One guiding idea of a "progressive" economy is expanding human abundance and not merely increasing the (badly distributed) abundance of goods. A socio-economic basis for this expansion is the partial emancipation of all people from the "necessities" of economic production so that everyone on one side can share in paid economic work and earn the necessary purchasing power and on the other side gain time and free spaces for cultivating non-economic dimensions of the good life instead of working half ruined in harsh performance competition while others have no paid work. John Maynard Keynes, the great economist who was not only an economist, prophesied to his grandchildren a civilized society of liberated time in which economics would be increasingly secondary and yield to occupation with the more important things of life.

However Keynes erred, as you know. The pressure on those who still have a job is greater today than ever before. Individual self-assertiveness in sharp competition claims us more than ever on the labor market where most of us must be accepted as employees for want of other resources. Why did Keynes miscalculate so badly with his prognosis? Because he really didn't understand competition! As long as an intensive free enterprise competition prevails, our self-assertion always depends in the first place on our relative competitive advantage over our rivals on the labor market, not on the absolute productivity level of the economy. When all other "work owners" or "seekers of work" make themselves most "fit" for the competition, nothing is left to me but to invest even more in my competitive position by greater diligence and working harder. Otherwise the market will gracelessly show me the "red card" one day and eliminate me.

This is a decisive point for a life-conducive economy. If these reflections are correct, then something is not right. Nearly all economic- and social-political questions are allegedly solved with the general neoliberal prescription, "more market". A policy of continuous "deregulation" and intensification of competition perpetuates the conditions of an economy of poverty in the double sense:

- Firstly, everyone entangled in competition and caught in "practical constraints" must devote almost all energy to self-assertiveness in "economic life", to slaving away for the necessaries of life instead of the growing productivity of the division of labor economy and world economy progressively liberating us from the economic "distresses of life" as one could expect.
- Secondly, a boundless competitive society is divided ever more strongly in "winners" and "losers". The motto "Winner takes all" is in effect. What arises on the side of the growing multitude of losers is "the new poverty". Many speak of the threatening 20:80% society, no longer of the two-thirds society. The neoliberal policy of intensified competition is the central cause of this problem, not the solution!

The only way to defeat this perpetuation of a socially divided economy of poverty and create the presuppositions for an economy of general abundance of life is - horribile dictu - not a policy of intensification but of limitation of competition according to "vital political" aspects of individual and social quality of life. Restoring the precedence of vital policy (oriented in the good life and just cooperation of humankind) before competition policy is crucial.

This can only succeed when all rivals in a market keep to common vital political rules of the game of competition.

To the extent that competition in globalization exceeds the nation-state area, national policy now loses its power or sovereignty for embedding and binding the life-conducive free enterprise system.. Whoever wants the global market must also accept a global framing order of the marker, in other words restrictions on the market- and competition established by vital policy which are enforced by supra-national authorities. In this connection, the ethical and political clear-sightedness among many economists and politicians marked by the neoliberal ideology is problematic when they welcome the unconditional world economic "positional competition" and cherish the economistic textbook illusion that there are always only "winners" and no "losers" in free world trade.

In the eyes of the losers, the legitimacy question of the market economy is raised sooner than later with unexpected social explosiveness. An economic society that on one hand preaches performance ("performance must be rewarding again") and on the other hand denies the chance of making a living to a growing part of humanity blatantly violates one of the most elementary liberal principles of justice.

More losers will suffer the more intensive the competition in the liberal tradition with its emphasis on the personal responsibility of independent citizens and the competition of free enterprise achievement. Under these circumstances, the test of a legitimate market economy must be how it relates with the losers. Instead of stamping losers as failures and making them dependent on incapacitating if not degrading "relief" or "assistance", a truly liberal society must be judged in whether it guarantees real freedom and dignity to all citizens independent of whether they are among the winners or the losers in the harsh performance competition.

Safeguarding universal freedom under changed socio-economic conditions assumes the creation of new socio-economic civil rights, "economic civil rights": the equal basic right to work and security of existence for free citizens instead of "alms" or "charity" for the needy (cf. Ralf Dahrendorf, one of the influential thinkers of political liberalism, not pure economic liberalism, in Germany). In a developed civil society, the "civilizing" of the market and the "civilizing" of the state are imperative. In Dahrendorf's words (1992),

"The socio-economic rights of citizens are unconditional rights which surpass the powers of the market and show it its limits."

Whether as an emancipatory or liberal goal, the guaranteeing of the general civil right to a basic financial security (in the form of the "negative income tax", a citizen grant or redistribution of work so that everyone can assure his or her existence must be decided democratically in a free society. On the other hand, refusing this goal and accepting the division of society in winners and losers as inevitable as market-radical neoliberals argue would be cynical. If the ethical claim of a well-organized society is refused, the social-Darwinian "survival of the fittest" appears inevitable like a natural law. Avoiding this worst of all alternatives in economic- and social ethics respectable again today among neoliberal market fundamentalists is the goal of all true friends of the market economy, those who want a life-conducive market economy, not a brazenly autonomous market economy.

In summarizing reflections on the question of the meaning of economics regarding the good life and the question of a legitimate economic order as a presupposition of just cooperation of humankind under competitive conditions, the outlines of a future-friendly model of a life-conducive market economy are clear.

Places of Morality in a Well-organized Society of Free Citizens

Identifying guiding ideas of a meaningful and legitimate market economy is one thing. Naming authorities for corresponding action is something very different. Economic ethics postulates remain literally u-utopian or without place with clarification of "places" assuming responsibility for a life-conducive economy.

The morality of economics is also "without place" in current economic thinking. In the neoliberal perspective, the political function of the state is reduced to functional system control. Private maximization of advantages, benefits or profits is allowed to individual economic subjects. Behind that is the old Hobbesian dream conceiving and justifying a liberal society entirely as a "system of ordered egoism" (Habermas 1992) without any exaction of moral virtues on citizens viewed as pure homines oeconomici. In this Hobbesian-economistic world, democratic politics is nothing but the continuance of private affairs with other means, namely the struggle around the strategic enforcement of particular interests by the state. Political-ethical aspects of public spirit and justice are entirely dispensable or non-essential according to this libertarian theory of society.

This na´ve dream has been dreamt. Like the communitarian counter-movement against the one-sided economic liberalism in the US, experiences with the transformation problematic in Eastern Europe show that a well-organized liberal society is not possible without a minimum of political virtue of citizens. A civil society is necessary between the individual on one pole and the state on the other pole in which citizens develop a certain measure of "public spirit" and joint responsibility for the conditions of "res publica", public things. The long blocked tradition of interdependent ethics is being rediscovered today.

A supportive liberalism needs an interdependent substructure. The individual citizen cannot only understand himself as a bourgeois or private autonomous citizen but always also as a citoyen who responsibly shares in the common cause of a just social order.

Integrative economic ethics emphasizes that the embedding of the market economy in a well-organized society is only possible with an economic ethics that makes individual economic subjects ("economic citizens") jointly responsible for public affairs. The interrelation between individual-ethical demands of "civil virtue" and institutional-ethical demands for the vital political quality of the economic order is necessary.

Economic ethics cannot be reduced to either an individual virtue- and responsibility ethic or to a pure ethic of order and rules. The good will of individual economic citizens is overstrained and ineffective without encouraging life-conducive structures in the framing order of the market. However the creative political project in a democratic society without political majorities capable of action is ultimately "subject-less" without economic citizens ready to assume a minimum of joint responsibility for the conditions of res publica. Both an ethic of economic citizens and an order ethic are indispensable.

Business ethics, the third systematic place of the morality of economics in a well-organized liberal society, also must be set under the principle of joint responsibility as internally two-stage. Firstly the immediate business ethic implies readiness to set the entrepreneurial success orientation under the premises of legitimacy and responsibility toward all other concerned. Secondly, ethical entrepreneurial readiness bears joint responsibility for the unreserved support of political reforms for a just and meaningfully organized economic order.


Ladies and gentlemen, I have tried to thematicize the "freedom of society on trial" and give you a tours d'horizon of several systematic aspects from the perspective of the St. Galen initiative of "integrative economic ethics". Ultimately this is not an academic conception. The free civil society itself is the moral authority of economics. All of us must be engaged in joint responsibility in the political debate around the decisive socio-political signposts pointing the way ahead. This debate turns basically around the question: Which should have priority: the neoliberal idea of the "free market" or the liberal idea of the free citizen? I plead for the perspective of measuring the advanced life-conducive economy as to whether it primarily makes people free, not the market.

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request 06.Apr.2004 02:52

Bilal bilalmohammad701@hotmail.com

dear sir,
can u tell me about the importance of economy in management and a society.

104 vicarage road leyton