From Euro Chaos to Chasm

As Greece Votes

I was on an ethics panel this week – organized by CGMA and Accounting Magazine. This has been arranged to discuss the outcome of CGMA’s recent survey “Managing Responsible Business” http://www.cgma.org/Resources/Reports/Pages/ManagingResponsibleBusiness.aspx

This survey explored the range of issues around business and doing things properly – ethically. It found that most businesses tried to, CEO’s were handing down responsibility for this to other staff, the ability to do so changed by country and there was real pressure not to in some countries.

With elections in Greece on Sunday and the Euro in everyone’s mind, the issue of business ethics seemed mighty small in comparison.

Ethics – moral rectitude, the rules of conduct – are not just about business. It is from society that ethics emerge and it is the destruction of the rules of good conduct that has tipped Europe and many other parts of the world into an economic, political and financial chasm. It is a chasm that threatens our way of life and, deep inside that chasm, there is not a lot of light.

The Chasm is not just a Banking one

 

We are continuously being told by our politicians that the current banking crisis can be resolved with large amounts of cash. The latest attempts are the £100bn on offer by the Bank of England of low rate loans to banks to regenerate lending in the UK and the €100bn on offer to Spain to prop up their banks.

In the chasm, sticking plasters don’t work.

Banking liquidity is not the problem anyway. The problem that banks have in Spain, for example, is solvency – their very being is at stake not their ability to lend in the short-term. They were over-stretched by awful decisions ten years ago to lend to get-rich-quick property schemes that were doomed and, when the tide went out, were shown to be naked. Borrowers across the western world were too highly geared – over-leveraged. While companies have managed to get their act together, individuals have not and while savings are higher, they are still, by normal standards, far too over-leveraged – which is still leading to house price reductions everywhere but London (where funds are rushing in from all corners of worse of countries).

But, the banks are hiding behind the problem in front of them – national insolvency. The transfer from nations (i.e. taxpayers) to banks has been enormous and continues. Well over a trillion dollars was poured into the US banking system and the same in Europe. The estimate is that this needs at least to be doubled. National solvency is at stake throughout Europe (west, south and east especially) and the austerity programmes now in place are a testimony to them.

Like the 1930’s, this is leading to massive unemployment and a risk that the chasm into which nation by nation is being thrown will swallow them whole. In Europe, the answer, we are told lies with Germany – they should assume the debts of all the others with Eurobonds – a financial answer to a financial problem.

But, the chasm is bigger than this.

The Chasm is engulfing Politics, Economics and Finance

Behind the financing of banks and the insolvency of nations lie the root causes. These are the disenfranchisement of the mass of people in most nations – disenfranchised not by their inability to vote every few years but by the paucity of choices on offer.

Greece offers a great example of a nation in economic chaos but the causes and the choices open to the people there are not often recorded.

Whoever read Michael Lewis’s “Boomerang” will understand some of the corruption that underpins the chaos. It is endemic and led by a political elite that have rampaged through the economy and gouged out any life from it. At the same time as The President of Equatorial Guinea is about to meet with four NGO’s (including my former employer, Global Witness) to discuss the rampant corruption inside his country, who is meeting with who to ensure that Greece can emerge with some dignity from its corruption?

Who can blame voters for, at last, running away from Pasok and into the arms of Syriza – the main concern is not the Euro, it is the corruption of the political elite and complete lack of trust in any politicians. The whole political class is tainted.

Outside Greece, the same is true to some extent in Spain and in Italy, where technocrats (unelected) now rule. The paucity of choice for voters – why vote for politicians when they are all the same and as corrupting and corruptible as each other?

The euro problem is much deeper. It is not just about emulating hard-working Germans, it is about serious change needed throughout Europe where leadership is absent or tainted by nations that are corrupt, unable to raise taxation, where the cash culture is rampant. This is true in Greece, Spain, certainly southern Italy and elsewhere. Why would Germany want to pick up the tab for this when the problem is chasm deep – not the surface banking or financial issue that has been painted?

The Ruling Class

In democracies, we are supposed to be able to vote out political parties that do a bad job. What happens when the whole political class is damned? The whole electorate is disenfranchised as a result.

This is true throughout the Eurozone – political parties have joined forces with other powerful elites to seemingly run countries – now, it is clear they have run them into the ground or, worse, into the chasm where conventional politics, economics and finance are drowning.

The ruling classes – politicians of all political persuasion, big business, the public sector – decided to run off with the benefits and have left the rest behind. Somewhere those funds reside in tax havens, well away from the hands of civil society. If it was all about harder effort, there could be some light ahead, but the problem is so deep that it will take years of real change and real hurt to recover to anywhere near where countries thought they were until recently.

From Chasm to ……what?

The European dream of one country living under one flag, which to many is a nightmare, is not a new one as the wars of the twentieth century showed. Now, a war just as savage is being fought – but a war where the fighting is hidden and where the soldiers don’t even realize they are in the trenches. Greek citizens and the young in Spain (where 50% are out of work) probably realize the consequences of the post-war European experiment. Many others don’t yet, but soon will.

Papering over a crack or two is relatively easy. Papering over a chasm is impossible,

The core problems of societies need to be resolved – corruption has to be ended, taxation has to be collected, public servants have to serve the public, politicians have to be credible and respected and people have to believe that if they work hard they stand a chance of being successful. For banks to function, they need finance; for businesses to succeed, they need markets and finance; for an economy to succeed, it needs good business but also a society that works – and that is not riven with insidious corruption of people and dignity.

Many African states (with massive natural resources) are corrupt and wealth is held by small elites. We did not believe that the corruption in Europe was on the same scale and, indeed, it is not the same – but the scale may be greater and just as endemic.

Solutions will not be found purely through the injection of more money into a chasm – the chasm has to be filled first or cleansed at least. Liberal democracy was supposed to be the best solution (the best worst solution). The 21st Century struggle may not be against the same totalitarians as in the last century (fascists and communists) and, hopefully, it may not be sullied by war and death, but, metaphorically, it will be just as bloody and won’t be complete until political elites are brought down to earth and civil society gets inside the tent.

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Strangling Inherent Dignity – How we retain (regain) Self-Respect

Orhan Pamuk, today on the BBC, talked about how the military in Turkey have been moved away from the centre of political decision-making. Their threat has been diminished, resulting in a feeling of relief or release. He also remarked on the Arab Spring and how in Tunisia and elsewhere people had regained some dignity – maybe threatened by Islamic re-awakening (but “that would be the people’s decision”).

In China, the escape of Chen Guangcheng from house arrest and his televised pleas to Wen Jiabao to halt the rampant corruption in China points to a state that is gnawing away at its soul.

In the USA, the economy is dangerously tilted towards the highest 1% who now own around 50% of its assets.

In Spain, 24.4% of people who are seeking work are without a job.

Charles Taylor is found guilty of by the International Criminal Court of aiding war crimes – yet, he remains popular in much of Liberia for his ability to dole out cheap bread at the right times to local populations.

Organisations and People – The fight for Dignity

 

Whether as individuals or members of an organization or a region or a nation, the human instinct is to reach for a minimum level of dignity. The need to attain a degree of self-respect is fundamental to the human condition. Whatever our economic attainment (whether we are wealthy or poor) each of us retains the need for self-dignity and the self-respect of those closest to us.

Attainment of dignity is a basic need and we continuously fight for it.

The Universal Declaration of Human Rights starts its preamble with the following:

“Whereas recognition of the inherent dignity and of the equal and inalienable rights of all members of the human family is the foundation of freedom, justice and peace in the world”

Yet, across the world, as we grow economically across a wider population, there is little evidence that we understand much more about a central issue that continuously confronts us – the attainment of “inherent dignity”.

If dignity means the attainment of freedom, justice and peace as the most important elements of our civilization (and we should be careful to ensure that our freedom does not blind us to the needs of a wider responsibility – to the planet as a whole), then what do we do daily that reminds us of our need to provide dignity and who is it who has this responsibility?

Responsibility

Leaders – whether of nations, businesses, local authorities , families or whatever – have a responsibility to those that they lead. This responsibility includes the establishment or reinforcement of cultural norms that strengthen the central idea of dignity to all its members.

This central tenet has been forgotten – we hear it infrequently amongst the babble of noise that comes from politicians and economists, business leaders and social leaders.

There is no question that where poverty is extensive, a crucial role for leaders is to ensure that economic growth is secured and poverty is minimized.

There is no question that where health and safety is jeopardized that better ways have to be found to minimize danger and secure life.

There is no question that where housing is poor that people must be housed and clothed.

But, the basic needs of food, shelter, clothing and safety are at one with the need for self-respect or dignity. The drive for better gross domestic product (GDP) has, in our enthusiasm to generate more wealth, left behind the basic understanding of what it is that propels the human spirit.

Setting dignity at the centre

While this is not a simple issue (dignity may be seen have different connotations to different people) the need for self-respect is the driver that propels individuals to fight back in so many cases.

The lack of dignity of those who are deprived of respect range widely. We see it constantly as we mentally note how individuals compare to certain societal norms – those who are poor are given less respect than those who are wealthy; those who have special needs are likely to be given less respect than those who are “OK”; those who are amongst the led are given less respect than those in power; those without the vote are seen as demanding less respect than those commanding political heights; the unwell lose dignity when maltreated; the unemployed lose dignity by the nature of unemployment and an assumption of laziness – the list goes on.

The problem is that self-respect is not normally a subject that is discussed or considered when key decisions are made. We are trampled by the rush to mend economic fences so easily that we ignore the affects. An example is Iraq. Here, not only was the rationale for entering Iraq wrong – there were no weapons of mass destruction – but the dignity of the Iraqis as a nation (or several nations within borders created by Europeans who cared nothing for the self-respect of those within them) was not an issue despite what should have been the lessons of history. Economics (through oil) and maybe the stated threat of terrorism (maybe) dampened the pressure to think through the impact of a complete eradication of self-respect amongst the Iraqi people – a self-respect oddly (to us in the west) retained with a strong man at the helm (Saddam Hussein) and then not replaced. In Afghanistan, self-respect has, through the ages, turned out many who would think to rule the country. It is the demand to self-rule that has been constant.

Corruption tears away at dignity

The danger in China is that corruption (an economic and power game) is tearing away at the nation’s credibility and self-respect. Recently, university students in Beijing were asked by the BBC what careers they wanted and one answered they wanted to be a senior local politician because that is where the money (through corruption) goes. The lack of self-respect that enables this response is intense and is leading to a potential fracture of the system in China as recent events in Chongqing highlight.

In India, one of its best-known websites is www.Ipaidabribe.com . This is a self-understanding of the rampant corruption in the country and mirrors a loss of dignity that brutalizes that society.

As a result of its alleged dealings in Mexico, Wal-Mart is under investigation by the US authorities through the Foreign corrupt practices act (FCPA) over millions of $’s of facilitation payments (not in themselves individually illegal under the FCPA but maybe through the gross flouting of corporate norms will be found to be). Mexico, riven by many drug cartels and corruption, lacks a dignity and self-respect because money is at the centre and seen as the only response. Wal-Mart helps to encourage that loss of self-respect.

National dignity or the dignity and self-respect of any business or individual is destroyed by corruption. When dignity is destroyed, then the basic ability to enjoy a life of “freedom, justice and peace” is also destroyed.

Economics cannot be isolated from self-respect

A cornerstone of self-respect is the ability of individuals to reach a level of basic self-attainment – the ability to feed oneself and one’s family; to house and clothe at least. In the rush towards austerity the macro-economic arguments are destroying the micro-economic disasters that are being generated. Poverty in wealthy nations is on the increase and the unevenness of wealth is growing. This is leading to a loss of self-respect amongst large sections of society. The impact of this change is uncertain – but, we can judge that the effects will not be positive.

John Rawls, one of the best-known and best-respected philosophers of the 20th Century considered self-respect as “perhaps the most important primary good” and how lack of self-respect leads to a growing disenchantment with the society and an estrangement with its ideals.

In the UK, maybe more prosaically, Ian Duncan Smith has highlighted the need for self-esteem amongst those on welfare and why jobs are the answer to bringing them out of the cycle of poverty.  This cycle of poverty is being exacerbated by the sovereign debt crisis which has transferred bank debt to national debt and enabled bankers to reap the rewards.

This crisis is now endemic in Europe and threatens stability and progress. The lack of dignity of nations (Greece, Spain, Portugal) as the Eurozone centre demands they commit to more austerity is misunderstood or ignored at the Eurozone’s peril. It is a fall-off in self-respect that eventually reaches a tipping point. It was a fall-off in national self-respect that catalyzed the German nation towards fascism in the 1930’s – a lack of national dignity that was caused by the war reparations following the 1st World War and heightened by the torments of the depression of the 1930’s. At some point, shattered self-respect will require repair – sometimes in brutal ways.

Democracy, Corruption, transparency and Economics

There are many ways in which dignity is destroyed – through lack of involvement in decisions, through corruption and lack of a chance for basic economic fairness.

There is no single answer but the key problems facing us today should all consider the issue of dignity before the answer comes rattling out. Clearly, real democracy, eradication of corruption, better knowledge of and openness about what is being done (transparency) and a new economics based on an understanding of the economics of self-respect are overall responses to ensure that we enjoy the basic dignities enshrined in the Universal Declaration of Human Rights.

“Whereas recognition of the inherent dignity and of the equal and inalienable rights of all members of the human family is the foundation of freedom, justice and peace in the world”