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And Who is My Neighbour? Moral Duties at Home and Abroad

 

By David Miller

 

I want to begin with a thought experiment proposed by the Australian philosopher Peter Singer in a much-cited article from the 1970s.[1] Singer asks the reader to imagine walking past a shallow pond and seeing a small child who has fallen in and is in danger of drowning. He assumes, and we would surely all agree, that the passer-by should jump into the pond and carry the child to safety even though this might ruin the clothes he or she was wearing. Indeed it would be morally wrong not to do so. Singer argues that this shows that we are committed to the following principle: ‘if it is in our power to prevent something very bad from happening, without thereby sacrificing anything morally significant, we ought, morally, to do it’.

But Singer goes on to argue that accepting this principle would create for us quite demanding obligations towards people living in distant places. Suppose that rescuing the child would cost us £250 – the exact figure doesn’t matter – to replace the clothes that are now ruined. And then suppose that the following day an appeal letter arrives in the post asking you to donate £250 in order to save the life of a famine victim in a faraway place. (Bengal, experiencing a severe famine at the time, was the example Singer used.) Suppose there is no question that if you donate the money a life will be saved. Then, says Singer, you have as strong a moral obligation to write the necessary cheque as you had to pull the child out of the pond. The fact that the child is right there in front of you while the famine victim is thousands of miles away cannot make a moral difference – so long as it is within your power to save the life of the latter.

Most people, I believe, when presented with Singer’s two cases, are likely to disagree. They would willingly accept that in the case of the drowning child, there is indeed a strong moral obligation to go to the rescue, so long as the cost is moderate. Anyone who later reported that they had walked past a pond in which a child was drowning, but they had decided to save their new suit at the expense of the child, would rightly be severely blamed. But in the case of the famine victim, people are likely to say that while it would be a praiseworthy act of charity to send the money – and perhaps that everyone who could afford to do so should set aside a portion of their income for general charitable purposes – there was no obligation to donate in this specific case. It should be left to the person who receives the letter to decide.

But if we want to avoid being impaled on Singer’s hook, we have to be able to explain why the two cases are different. Singer is right about one thing: it can’t just be a matter of the physical distance that separates the vulnerable party from his or her potential saviour. But the distance matters nonetheless, because in the pond case it’s the fact that I directly confront the drowning child, together with the fact that there is no-one else around to help, that makes saving the child my responsibility. I have been singled out by physical circumstances as the person who bears the obligation to rescue, whereas in the famine case, the person I might save is one among millions, and I am also just one among millions who might write the necessary cheque if they chose. There has been no assigning of individual responsibility.

The pond case is actually quite exceptional, not only because most of us will pass our lives without ever being called on to perform a rescue of that kind, but also because here a responsibility is created instantaneously between two people who are otherwise strangers to each other. In the usual run of things, moral responsibilities arise out of ongoing relationships, such as those we have with family, friends, or work colleagues. We take it for granted that we owe them things that we don’t owe to people at large. The responsibilities are simply part and parcel of what it means to be a friend or colleague, or to belong to a family. Suppose, for example, that a friend calls you to say that it’s an emergency, his car has broken down and he needs to get to the airport at once: can you give him a lift? You would, I hope, feel obliged to do that for a friend, whereas you wouldn’t do that for a random stranger who asks you – or at least, it would be seen as a great favour, not something required of you, if you did.

It would be possible to dig a little deeper here and ask why our morality has this shape, why our moral responsibilities grow out of relationships in this way. But instead I want to investigate whether and how the story so far can be extended so as to include obligations to our compatriots. Because some critics will accept that relationships matter in the case of family members, friends and colleagues, but deny that the same applies to the millions of people who belong to our nation but whom we will never know or meet in person. Nations are what the sociologist Benedict Anderson called ‘imagined communities’ – we think of them as communities, but only because of what we learn indirectly about our compatriots, through the mass media in particular.[2]

If we ask what exactly it is that binds the members of a nation together, a short answer was given in a famous lecture by the French philosopher and historian Ernest Renan. According to Renan, speaking at the Sorbonne in 1882, two things make a nation: ‘One is the possession in common of a rich legacy of memories; the other is present-day consent, the desire to live together, the will to perpetuate the value of the heritage that one has received in an undivided form’.[3] There is more that could and should be added here, but Renan grasps the essential point: that nations exist by virtue of their members’ continuing will to live together, but also by virtue of the culture and other features that they share, including historical memories, that support that desire. This is what makes them into genuine communities and creates a range of emotional attachments – national loyalty, national pride, and so forth – that in turn provide the source from which special moral obligations to compatriots arise.

If we now ask about the content of these obligations, the answer is that in circumstances where the nation’s very existence is endangered – in time of war, especially – they become very extensive, and the cost of carrying them out potentially very great. But in more normal times, they are largely transformed into the obligations of a good citizen: obeying the law, paying taxes fairly, voting in elections, opposing the government when it is acting in ways that are harmful to fellow citizens, and so forth. To these we should add duties to help strengthen the nation when it is at risk of becoming fragmented, which include taking steps to integrate with others who do not share your race, ethnicity or religion.

The more heavily contested question is what is owed to outsiders, people who are not part of the national community. I began by explaining why Peter Singer’s view, that at a fundamental level we owe them exactly the same as we owe to our compatriots, is mistaken. The relationships that support national obligations do not exist globally. But at the same time it would be wrong to suppose that we have no such obligations at all. There are indeed universal obligations that we owe to people simply by virtue of their humanity. For some people, but not everyone, these will have a religious basis. But rather than delving more deeply into their source, I want to focus on their content. 

The main point to make is that these universal obligations are mainly negative in character: in a broad sense, they are duties not to cause harm. We can begin with the more obvious of these obligations, such as duties not to kill, injure or abuse individual people, but then we should move beyond this to include duties not to take from people what is rightfully theirs (stealing their natural resources, for example), duties not to exploit (forcing them into one-sided trading relationships, for example), duties not to coerce (imposing forms of political authority without consent, for example), duties not to destroy the natural environment on which people depend for their livelihoods, and so on.  It is important to list these duties, because what we can then see is that a world in which governments and the people that they serve took seriously the maxim, ‘cause no harm’ would be a very different world from the one we currently inhabit.

But are these negative duties, even if conscientiously fulfilled, sufficient? Is it enough to say that all we owe to people beyond our borders is to leave them alone to sort out their own lives without our unwanted interference?  Well, sometimes we find that a special relationship exists with someone who is not a compatriot that requires us to take positive steps to provide a benefit or service. In fact, the example with which I began, rescuing a drowning child, illustrates the point. The duty of rescue is the same no matter what the nationality of the child. It would be monstrous to ask, ‘But is she British?’ before jumping into the pond. But in that case the special relationship created by urgency and physical proximity provides the explanation for the duty.

More often, the relationship that brings positive duties into play comes about in a different way.  There may have been an explicit or implicit promise to provide certain forms of aid to an outside group. Some of us may remember the Kenyan Asian crisis of 1968, when the government was rightly criticized for attempting to deny entry to British passport holders who now found themselves threatened by a hostile government.  By issuing them with passports, the British state was committing itself to providing the Kenyan Asians with protection in case of necessity, and in the circumstances this meant allowing them to immigrate to Britain. There may also be a duty to help those who have rendered services to the nation without being citizens – for example, the interpreters who supported British troops in Iraq and Afghanistan and now find themselves endangered as a result. And there may also be duties of reparation – duties to repair damage caused by not respecting the negative duties outlined above in the first place.

Sometimes a convention may arise whereby states agree to provide each other’s citizens with certain forms of aid, and this can be seen as a form of mutual insurance against disaster. Today when countries are hit by earthquakes, tsunamis or extreme weather events, rescue teams are sent internationally to help the survivors, and although this wouldn’t be regarded as an enforceable duty, it would be regarded as a failure of reciprocity if a country with specialist teams and equipment simply refused to join in a rescue operation. We might expect to see this practice extended as climate change has its predicted effects. And although it is grounded in reciprocity, it goes a step beyond strict reciprocity, because, for example, even countries that are at no risk of experiencing earthquakes themselves will join in the practice and send rescuers when earthquakes strike elsewhere.

Then finally, we should acknowledge what Cicero once called ‘duties of liberality’. These are the duties that arise when it is possible to benefit someone else at virtually no cost to yourself. Cicero, from whom much of what I have said above could also be gleaned, gave as homely examples allowing someone take a light from your fire or water from your freely-flowing stream.[4] Today we might think of allowing others the opportunity to benefit from scientific knowledge or technical advances created by members of the nation. A country that refused to share such human achievements merely out of spite or in order to preserve its position of relative advantage would, I think, be behaving illiberally, in Cicero’s original non-partisan sense.

Even after we have recognized the several different ways in which positive duties to benefit those outside the nation may arise, it is still important to insist that there is no duty to create a universal welfare state. The special duties we have to compatriots and the general duties we have to human beings everywhere have a different character and different sources, and failing to notice the difference – trying to treat everyone as though they were already compatriots – is likely to have very bad consequences.

Despite everything that has been said so far, I can imagine an objection along the following lines: you have conceded that nations, which you have been treating as the source of special obligations, are ‘imagined communities’. So why cannot imagination be stretched so that humanity itself is seen as one enormous inclusive community? One reply to this is that the attempt to do so will always be insincere. Jean-Jacques Rousseau wrote scathingly about ‘supposed Cosmopolites’ who ‘justifying their love of the fatherland by means of their love of the human race, boast of loving everyone in order to have the right to love no one’.[5] But another reply is that even if it were possible to realise the cosmopolitan dream, we would be in danger of losing something of equal if not greater importance: our experience of human diversity, the richness that comes from living in a world of many contrasting cultures which depend for their survival on a certain degree of closure, each country taking steps to preserve its own distinctive way of life. As Isaiah Berlin once put it, ‘if the streams dried up, as, for instance, where men and women are not products of a culture, where they don’t have kith and kin and feel closer to some people than to others, where there is no native language – that would lead to a tremendous desiccation of everything that is human’.[6]

 

David Miller is an English political theorist. He is Professor of Political Theory at the University of Oxford and an Official Fellow of Nuffield College, Oxford. He previously lectured at the University of Lancaster and the University of East Anglia.  He is the author of a number of publications, including Social JusticeOn Nationality (Clarendon Press, 1995) and Citizenship and National Identity (Polity, 2000). 

 

[1] P. Singer, ‘Famine, Affluence and Morality’, Philosophy and Public Affairs, 1 (1972): 229–43.

[2] B. Anderson, Imagined Communities: Reflections on the Origin and Spread of Nationalism, 2nd ed. (London: Verso, 1991).

 

[3] E. Renan, ‘What is a nation?’ in E. Renan, What is a nation?: and other political writings, trans. and ed. M. Giglioli (New York: Columbia University Press, 2018), p. 261.

 

[4] Cicero, On Duties, ed. M. Griffin and E. Atkins (Cambridge: Cambridge University Press, 1991), p. 22.

 

[5] J.–J. Rousseau, The Social Contract and other later political writings, ed. V. Gourevitch (Cambridge: Cambridge University Press, 1997), p. 158.

 

[6] N. Gardels, ‘Two Concepts of Nationalism: An Interview with Isaiah Berlin’, New York Review of Books, 21 November 1991, p. 22.

How Much Love, to Which Neighbours? Our Duties Within the Nation and Beyond

 

By Daniel Johnson

  

In British political debate, it has not been customary for the past century or so to cite scriptural texts, let alone embark on their exegesis, in order to clinch an argument. Any politician or journalist who tried to do so would quickly discover that such tactics were rhetorically ineffective. Even in a properly moral discussion, such as the present one about euthanasia, quoting the Bible is counterproductive: it enables the other side to dismiss the case being made as ‘prejudice’ or ‘bigotry’. A century ago, the speeches of Lloyd George were saturated in Biblical references, which his audiences would have grasped implicitly. Now, I doubt whether, for most people, our question would register as an allusion to scripture, even at a subliminal level. We have long since lost the world in which Christianity permeated every nook of our mental furniture.

Across the Atlantic it is a very different story. There, many politicians take a basic familiarity with the Bible for granted and an appeal to divine justification is a normal eristic strategy – even for political leaders of whom it might be said, with Oliver Cromwell, that they have no more religion than a horse. It is worth considering this scriptural approach, if only to reject it.

When Jesus taught his followers that the second great commandment was to ‘love thy neighbour as thyself’, he was in fact quoting Moses directly. In the Book of Leviticus 19:18, the people of Israel are enjoined: ‘Thou shalt not avenge, nor bear any grudge against the children of thy people, but thou shalt love thy neighbour as thyself: I am the Lord.’ Note that by ‘neighbour’, Moses here implies acquaintances and certainly fellow Jews. However, in verse 34 of the same chapter, the scope of ‘neighbour’ is expanded: ‘But the stranger that dwells with you shall be unto you as one born among you, and thou shalt love him as thyself; for ye were strangers in the land of Egypt: I am the LORD your God.’

For the Jews and Christians of biblical times, then, the meaning of ‘love thy neighbour’ was explicitly inclusive, not exclusive. In the commandment of Jesus, firmly based in Hebrew Scripture, there is no hierarchy of affinity, no ordo amoris – whatever the Vice President of the United States may say.

Yet there is a serious difference of interpretation about who counts as a neighbour and what our duties are to them. Pope Leo XIV has warned against the policies of the Trump administration, citing the parable of the sheep and the goats in Matthew 25: ‘For I was a stranger, and you did not invite me in.’ But of course there are always passages in the Bible that can be used to justify any cruelty or injustice. According to my fellow Catholic J.D. Vance, the actions of the ICE snatch squads are ‘humanitarian’, while my Evangelical namesake, Speaker Mike Johnson, has justified them as part of the ‘Christian case for border security and immigration enforcement’.

Both these Christian gentlemen are, in my view, being disingenuous. They must know that there is no Christian case for the violent and arbitrary overreaction to the presence of millions of undocumented immigrants that the world has witnessed in Minneapolis and other American cities. Why, then, does Johnson claim that he, and not Pope Leo, has the correct interpretation of Scripture?

In a written statement, Johnson insisted that the passages cited above from Leviticus 19 and Matthew 25 were addressed to individuals, specifically the disciples, while governments have completely different moral criteria. ‘Despite the unfounded claims of the Left, supporting a strong national border is a very Christian thing to do. The Bible tells us so.’

The Bible, in particular the Hebrew Bible, has indeed furnished powerful arguments for the idea of a nation state within clearly defined borders. But that is a very different thing from providing ammunition for the indiscriminate and generally unwarranted use of deadly armed force to carry out mass deportations of undocumented immigrants who in most cases had been living peacefully and productively in the US for many years.

So the introduction of religious texts into a political debate does not resolve our differences. Interpretations of such texts differ widely and no useful purpose is served by turning a moral question into one of theology or indeed hermeneutics. Let us return, then, to first principles and only then compare our conclusions with the relevant passages of scripture.

There are, of course, two separate issues here: immigration and integration. Immigration is primarily a question of numbers. Britain, with a long history of migration and globalisation, ought to be capable of absorbing at least half a million migrants a year – roughly equivalent to the numbers now emigrating. It may not be fashionable to say so, but with a falling birthrate and ageing population, we need to import more skilled workers than we lose if the British economy is not to continue languishing in stagflation and welfare dependency.

In the 19th century there was large-scale immigration to England from Ireland: most of the six million or so Catholics in the UK are descendants of that wave, though that figure includes up to a million people of Polish descent too. Incidentally, there are more Catholics than Muslims in the UK – they are our largest religious minority – and more people speak Polish than any of the languages of the Subcontinent, the Middle East or Africa. Though Catholics only acquired civil rights in 1829 and remain subject to legal discrimination to this day (no Catholic can inherit the throne), their integration into a country with a Protestant established Church has been an unqualified success – admittedly over nearly two centuries.

So the practical problem to be solved is the maintenance of a manageable proportion between the scale of immigration and the pace of integration. For most of our history, that task has been relatively straightforward. Even substantial numbers of non-Christian immigrants – Jews, Hindus and Sikhs, for example – could be integrated without serious difficulties. This was demonstrated by the failed attempt of Oswald Mosley’s Fascists to march through the East End of London, in order to intimidate the poorer and more vulnerable elements of the Jewish community. Indeed, Mosley’s British Union of Fascists never won a single seat in the Commons. Their only major impact was on the National Government, which panicked about anti-Semitism and excluded all but a few Jewish refugees from Nazi Germany and Austria. Fearing Arab riots, the British also prevented Jews from settling in Mandate Palestine throughout the period of Nazi persecution and genocide. Even after the Holocaust had ended, ships carrying Jewish survivors landing in Palestine were forced to sail back to a devastated, starving and hostile Europe. These boat people, remember, were classified as ‘illegal immigrants’.

For Christians, this episode ought to give us pause. One of our most ancient orisons, still prayed or sung in Greek, is the Kyrie Eleison Lord, have mercy’. To the people who taught us the meaning of mercy, however, we showed very little of it.

Of course, the moral choices we face today are very different. The Muslim population, for example, is much larger: a quarter of all primary school children in London are Muslim – a larger proportion in most boroughs than those who identify as white British. Under these circumstances, the question of integration changes: what exactly are minorities supposed to be integrating into? The popular panacea of the Danish Social Democrats – eliminating illegal immigration and preventing the formation of anything that resembles an ethnic ghetto – is incomparably less effective in Britain, given our burgeoning human rights industry and long-standing urban demography. ‘British values’ – tolerance of cultural and religious differences, fair play, ‘live and let live’ – are much more difficult to maintain once majorities are turned into minorities without their consent. Muslims are now the largest and most obviously sectarian bloc in British politics. Some of their self-proclaimed representatives having aggressively asserted themselves in public spaces – the prime example being the Gaza hate marches of the past three years – it is no surprise that other minorities feel threatened and organise themselves, too. The stage is set for civil unrest and sectarian polarisation, a scenario in which Christ’s commandment to love thy neighbour as thyself is all but forgotten.

An example of the mutual recrimination that has replaced reconciliation is the Reform UK policy on reparations for slavery. Last month the UN General Assembly passed a motion declaring that slavery, narrowly defined as ‘the transatlantic slave trade’, was ‘the gravest crime against humanity’, and urging member states to contribute to a reparations fund. Reform then announced punitive measures against any country that demanded reparations from the UK, starting with the denial of all visas to its citizens. They listed 13 states to be treated in this way, all of them Caribbean or African. Among them was Nigeria, some 300,000 of whose nationals live and work in the UK – one of the largest communities resident here and, perhaps not coincidentally, the country in which Kemi Badenoch spent most of her childhood and adolescence. In effect, Nigel Farage is threatening to penalise most of the nations from which black British citizens originated – including his most dangerous political rival. It is only one step from denying visas to forced deportations. Indeed, Reform has already pledged to carry out mass deportations. However we may interpret the biblical injunction to love our neighbour, it cannot possibly be justified to carry out the indiscriminate criminalisation of hundreds of thousands, perhaps millions, of people for no better reason than the actions of a government over which they have no control. If mass deportations were to take place in the UK, it would inevitably open the door to officially sanctioned racial and religious discrimination, potentially on a vast scale, and this country’s reputation for decency, compassion and equality before the law would be squandered.

Across the West, migration remains the most explosive issue in contemporary politics. The closely related questions of how far Islam should be expected to integrate into a predominantly Christian country, and what this means in practice, remain open. A lifetime has elapsed since Winston Churchill presented the site of the Regent’s Park Mosque to British Muslims in gratitude for their service in both world wars. Yet the Christian calling – what one might call the code of the Good Samaritan – remains imperative.

As I write, the case of the Southport killings has resurfaced, after a judge-led inquiry not only found all the responsible agencies to be culpable, but singled out the parents of the 17-year-old murderer for particular censure. Following this finding, parts of the media and some politicians have whipped up a hue and cry against the family, who have gone into hiding. Although there has been no repetition of the riots that erupted after the crime in 2024, the language deployed by Robert Jenrick, in particular, has been incendiary. He has demanded that the parents be deported to Rwanda, the place of the genocide from which they fled more than thirty years ago to seek asylum in Britain. Quite apart from the fact that they have not been convicted of any crime and are thought to have British citizenship, this family has already been punished for any failure to do their ‘moral duty’ with a life sentence of having to come to terms with the crime committed by their son.

Our moral duty as a society is to support the victims of his crime – but also to show compassion towards those who are also compelled to live with its consequences. Their reluctance to hand their disturbed son over to the authorities was a terrible mistake, but the fact that they must now live in secret for fear of violence does not speak well for our society either. And politicians who exploit hostility to migrants to gain popularity are certainly not acting in accordance with the teaching of Jesus Christ, whose name they often invoke. Not only are they disobeying the commandment to love our neighbours as ourselves, but also Jesus’s prior commandment to love God with all our heart, soul and mind. For that is incompatible with taking His name in vain, by weaponising it against the weak and defenceless. To put it bluntly: one cannot defend Christianity by speaking and acting in a tribal, that is an un-Christian, manner. The code of conduct embodied in the parable of the Good Samaritan requires us to treat strangers, immigrants and even (sometimes) enemies as neighbours — that is, to show them respect, dignity, mercy and even love. Such charity must, of course, be entirely voluntary: it cannot be coerced, not even in the name of human rights. Nor is it unconditional: there must be a degree of reciprocity. Kemi Badenoch is right that a privilege, such as indefinite leave to remain, must be earned; citizenship even more so. But once we have offered our neighbours kindness and hospitality, we cannot then withdraw it arbitrarily. As Jonathan Sacks used to say, a nation is not a hotel; it is our home. To make one’s home in a new land, to belong there, demands effort on both sides. Rights are not granted without evidence of commitment; they bring responsibilities and these are not to be taken lightly. But the Christian calling transcends rights, for love fulfils the law.

Back to the last days of Mandate Palestine, when Holocaust survivors were turned away from the promised land by soldiers who saw them simply as ‘illegal immigrants’. Michael Ivens, later founder of Aims of Industry and then serving in the British forces, captured this shameful betrayal in his poem ‘Haifa Bay in The Morning’. He describes his experience as a press officer as a shipload of Jewish refugees arrived, knowing that the British would send them away, yet hoping against hope that they would be rescued by the Haganah (the ‘defence’ militia of the Zionist Yishuv and precursor of today’s Israel Defence Forces). I happen to think that this is a great poem, but regardless of its literary merit, it has a message for us that is timely and perhaps even urgent.

Haifa Bay in The Morning

I saw a ship come sailing in,

Sailing in, sailing in,

With a list like a Stormtrooper’s twisted grin

At Haifa Bay in the morning.

 

The Army boat was waiting there,

(Haganah flashes ‘Take care! Take care!’)

The amiable squaddies all a’stare

Just three miles out in the morning.

 

And I was there in my little press boat

With one stout Guardsman to keep it afloat

And a man from The Times to keep it afloat

And a blasé photographer yawning.

 

Their lousy ship they bought from a Greek,

That it ever arrived was a flaming freak

Considering the size of its list and leak

Off Palestine in the morning.

 

Through shortage of water two girls had died

(Gone their dreams of a Sabra’s bride),

But two young boys jumped over the side

As the troopship moved close in the morning.

 

They could see the coast of the Holy Land

And the beckoning gleam of Haifa’s sand

And hoped for Haganah to give them a hand

To lose themselves in the morning.

 

But I was there with my little press launch

Full of zeal with my Guardsman staunch,

And when the two Zionists ceased to float

We hauled them up in our little press boat

And tried to explain they’d come to no harm.

(Both had numbers tattooed on their arms

In a quaint old Belsen warning.)

 

My Guardsman, a reprobate Irish Mick,

Albeit a lapsed Catholick,

Said, ‘Give the poor buggers a chance to run

And then we’ll go back and face the fun,’

His Paddy’s face white in the morning.

 

But the immigrant ship was towed to the quay

And the two little Zionists brought in by me;

One old Jew jumped over the side

And kissed the ground and cried and cried;

Another leapt down and split his head

And bled an Hebraic script of red

On the Holy Quay in the morning.

An Army troopship took them away

With swift discretion the very next day

And Haifa wept as they sailed away

To a Cyprus camp in the morning.

 

Envoi

They all are back in Israel now

And the two young Zionists work at the plough,

And my stalwart drunken Irish Mick

Is a reformed much-married Catholick.

But my mind it goes back to Haifa Bay

And dwells on the words I dared not say

And the sorrowful ship that sailed away

From the Holy Land in the morning.

 

Daniel Johnson is a British journalist and author who was the founding editor of Standpoint magazine and a former senior editor, editorial writer and columnist for The Times and The Daily Telegraph. Since 2018, he has been founding editor of the online journalism platform TheArticle, as well as being an associate editor of The Critic magazine and commentator for The Daily MailThe Mail on Sunday and The Daily Telegraph.

 

What are our Moral Duties as a Nation?

 

By Nick Spencer [1] 

The topic of what (if any) responsibilities we as a nation owe to others – refugees, immigrants, other nations, etc – is never settled. But, of late, it has been particularly unsettled.

Moreover, it is one that Christians are seriously (and increasingly?) unclear about, opinion being spread wide along a spectrum that stretches from one group of usual suspects who are satisfied by some boilerplate moral universalism backed up by a few airy references to the Good Samaritan, all the way to another, increasingly associated with the phenomenon of Christian Nationalism, who want to preserve the Christian culture of our nation by keeping immigrants out.

It’s not an easy discussion, nor one that is amenable to answers, perhaps even to any answer at all. But it is an important one, that we do ill to shy away from.

*

About 10 years ago I wrote a book on the different ways in which the Parable of the Good Samaritan had been used in British politics. It turns out that not only has the parable been used a lot but it had been used by a number of very prominent politicians, including Margaret Thatcher, John Smith, Tony Blair, Gordon Brown, Nicola Sturgeon, Hilary Benn and Jeremy Corbyn.

Needless to say, they weren’t all using it in the same way.

The recurrent presence of the Samaritan in our political discourse should give some cause for reflection among those who think modern politics is (or should be) a wholly secular affair. You can’t keep a good Samaritan down, it seems.

This is of obvious relevance to the question of what responsibility we have as a nation because the parable has been repeatedly invoked over recent years as a way of justifying a kind of moral universalism, and countering what its critics would call a morally myopic approach to our international responsibilities.

Last year saw a public spat between J.D. Vance and Rory Stewart over the Christian approach to the proper ordering of love and loyalty, sometimes known as the ordo amoris. The US Vice President had said in an interview on 30 January that he held to ‘an old school – and … very Christian concept… that you love your family and then you love your neighbour and then you love your community and then you love your fellow citizens and your own country, and then after that you can focus and prioritize the rest of the world’ – an ordering, he went on to say, that had been inverted by the contemporary far left.[2]

This drew a number of responses, not just from Rory Stewart but, more notably, Pope Francis who, in a letter to the American bishops published 11 days later, wrote, with unusual directness:

Christian love is not a concentric expansion of interests that little by little extend to other persons and groups… The true ordo amoris that must be promoted is that which we discover by meditating constantly on the parable of the ‘Good Samaritan’ (cf. Lk 10:25-37), that is, by meditating on the love that builds a fraternity open to all, without exception.[3]

Here we have, as it were, two theologically-flavoured answers to our presenting question.

On the one hand, there is the ordo amoris at least as interpreted by J.D. Vance, which sees love and neighbours extending from the moral agent in question, in a series of concentric and temporally sequential circles: first family, then neighbour, then community, then fellow citizens, then country and only then after that the rest of the world.

This ordering of love demotes care for those beyond your nation to the lowest possible priority. And given that no nation is ever likely to be free from problems or possessed of a surfeit of resources on which there is no domestic call, it is highly unlikely that any nation will ever be in a position to ‘focus and prioritize the rest of the world’.

Such an ordering risks legitimising wholly self-interested national policies while entirely ignoring those beyond its borders. Our duties are not beyond the nation, but within it (and they may not even extend that far within it.)

On the other hand, and at the other end of the spectrum, we have the ordo amoris as filtered through Pope Francis and the Good Samaritan which insists that there are no limits – and certainly no ethnic, religious or national limits – on those who have a claim to my attention and generosity.

By this reckoning, we might end up with a kind of political ethic that the former cabinet secretary Gus O’Donnell is quoted, by David Goodhart, as having advocated during a conversation at Oxford High Table; namely:

When I was at the Treasury I argued for the most open door possible to immigration… I think it’s my job to maximise global welfare, not national welfare.

As an aside, Goodhart goes on to remark that the other person he was sitting next to, Mark Thompson, then Director General of the BBC, agreed with O’Donnell, which led Goodhart to observe that,

Both men’s universalist views are perfectly legitimate and may reflect their moderately devout Catholic upbringings.

I can’t vouch for how moderate or devout were the Catholic upbringings of either Gus O’Donnell or Mark Thompson, but I think it’s fair to say, J.D. Vance notwithstanding, that the weight of Christian opinion, certainly in the UK, leans towards the universalist end of the spectrum.

There are many reasons for this, some of which are circumstantial. Many Christians see who stands at the other – nationalistic – end of the spectrum. Some Christians are mindful of the highly compromised ecclesiastical stances to nationalism in the early 20th century. And so they position themselves as far down the other end as possible.

But the position is underpinned by principle. We do find in the scriptures and supremely in the life and ministry of Christ, a more or less uncompromising attitude to the extent of our moral responsibilities.

Old Testament Israel was a tiny and vulnerable people, sandwiched between imperial superpowers. It could have been excused for adopting highly exclusionary and isolationist policies, which is more or less what it did for a time when it returned from exile.

But central to its identity – buried in the law – is the self-identification as aliens, which came with a particular responsibility. The Torah famously declares:

When a foreigner resides among you in your land, do not mistreat them. The foreigner residing among you must be treated as your native-born. Love them as yourself, for you were foreigners in Egypt.[4]

This sets the tone. In a similar vein, however much we might try and attenuate his teaching, the life and words of Christ are uncompromising.

The American scholar Bart Ehrman, who is no orthodox believer (indeed no believer at all), in a book published this month called Love Thy Stranger, puts it this way:

Kindness to strangers is not hardwired in our DNA. Nor was it esteemed by the great canon of ancient Western philosophy – the Greeks and Romans prioritised generosity to your friends and family. When Jesus told his followers to give up everything they owned to the poor, he heralded a moral revolution. The needy, the sick, the outcast were to be cared for – even if they were unknown to you. This was a tough pill to swallow for early Christians, and to this day, many insist Jesus didn’t really mean it. Nonetheless Jesus’ most radical commandment transformed the moral conscience of the West: its legacy lives on in public hospitals, the billions given in charity each year and even government welfare.

These views offer us an uncompromising answer to our question. You are to love everyone – friends, neighbours, even enemies – and your neighbour is emphatically not limited to those with whom you share physical space or family loyalty. Try as we might to domesticate the teaching of Christ, it will not be tamed.

*

However, a direct translation from the pages of scripture to a Government White Paper is never a great idea. Those states that have tried to realise eschatology through the statute book and to legislate for Christian morality have ended not as New Jerusalems but as oppressive and dystopian nightmares. The possession sharing of the early Church in Acts has been successfully imitated in many small, committed, volitional communities through the ages, most famously monasteries. But it didn’t work out so well when ruled out across entire societies in the 20th century.

For those who claim to follow Christ, his words have a direct authority that we should heed – albeit we usually don’t. Archbishop William Temple once remarked that the church is the only organisation that exists for the benefits of its non-members, and though there may be more than a bit of idealism in this, the principle is right. The church should have a centre but no borders and should seek to extend love and responsibilities as far as possible.

But there are two reasons why this doesn’t translate into a straightforward universalist political ethic such as Gus O’Donnell might advocate.

First, humans are temporal, located, embodied, relational, dependent beings. We exist in certain times and places. And we show love by helping one another in those times and places. And so we form communities, groups, networks and the like, in and through which we collectively seek mutual goods. To serve our universalist aspirations we must take account of our actual neighbours.

A few years ago, the journalist Jenny Kleeman wrote a book looking at how much value we put on a life in different social contexts. She went to San Francisco and visited the headquarters of the effective altruism movement, which pours huge amounts of money into poverty reduction schemes abroad, the effectiveness of which has been relentlessly and rationally calculated. But the streets around their offices were littered with the homeless and drug addicts.

‘I appreciate that it takes a certain kind of moral courage to be dispassionate enough to have these convictions,’ she wrote. ‘[But] is it a good kind of courage? Can you save more of humanity if you’re prepared to have [such convictions]? Or does this way of thinking require you to deny your own humanity?’

As embodied and located human beings, we do not consider the person who lets their child starve in order to feed others abroad as a moral hero. The ‘telescopic philanthropy’ of Mrs Jellyby in Dickens’ Bleak House comes to mind.

The second point is that the nation-state is not the church. The nation-state is not beholden to the same Christ-like ethic of welcome and boundless generosity as is the church. That does not necessarily mean we are bound to default to the kind of concentric, sequential loyalties that J.D. Vance outlined. I think you can still make the case for more and wider, rather than less and narrower, love and responsibility – but you have to make it within the space of actual public views.

You can make the case that international development aid, assuming it is well-targeted and effective, is the right thing to do: a moral duty. I think we should. You can make the case that we have a moral responsibility to welcome refugees. You can make the case for a national responsibility for those in society who are . You can make a case for trade relations and immigration policy that are more than a blunt assertion of my country first.

But you have to do so cognizant of the fact that the nation is not the church, and operates by a complex, shifting, plural set of moral visions, and if you do want to make that case, you are going to have to persuade people who care not two hoots for Christian ethics, moral universalism or the parable of the Good Samaritan.

*

Let me end by returning to the Good Samaritan and saying one more thing about what principles we might draw on to navigate the universalist challenge it, and the gospel, places before a nation state.

Like all good stories this parable has been interpreted in different ways. Beyond the politicians I mentioned earlier, Christian ethicists have read it as underlining the message that our ethical responsibility should extend to those whose needs you become aware of. In this vein, as Luke Bretherton said recently in the FT, the parable may be interpreted as saying that although people do have primary responsibility to their close circles, these may be superseded by the urgent needs of strangers.

The implicit ‘moral universalism’ of the Samaritan story (and indeed the gospel) tells us that there should be no arbitrary limitations to our love. But that still leaves open the practical question of who should be loved, when and how. The principle of ‘becoming aware of their need’ is an important one and should be included in the mix. But the problem today is that in a hyperconnected, always-on world, we are constantly aware of the genuinely desperate needs of many people across the world.

So I would argue that this cognizance of need should be tempered by the principle, outlined in Catholic social teaching, of subsidiarity, namely that that decisions and responsibilities should be handled by the smallest, lowest, or least centralized competent authority, with higher authorities intervening only when necessary to support or coordinate those efforts.

I suspect this was what J.D. Vance was trying to get at in his interview – at least that would be a generous interpretation of his words. But as a principle – just as our cognizance of need today needs to be tempered by a commitment to subsidiarity – because otherwise we might end up becoming like the people Jenny Kleeman visited in San Francisco…

… so our commitment to subsidiarity needs to be tempered by a cognizance of need – because otherwise we will end up ignoring the needs of those a long way away who happen to have no competent national government or effective civil society to help them in their need.

The question of our national moral responsibilities is an inherently agonistic one and not amenable to any final answer. In one respect it is good that we are having these kinds of debates openly in society today. But it will have escaped nobody that the mood music of our current political moment is to retreat, to downgrade the needs of the distant and to slip into the logic of a global zero-sum game. And I think that would be a profound mistake.

Dr Nick Spencer is Senior Fellow at Theos. He is the author of a number of books and reports, including Magisteria: The Entangled Histories of Science and Religion (Oneworld, 2023), The Political Samaritan: How Power Hijacked a Parable (Bloomsbury, 2017), The Evolution of the West (SPCK, 2016) and Atheists: The Origin of the Species (Bloomsbury, 2014). He is host of the podcast Reading Our Times.

[1] I would like to thank Jonathan Chaplin, Hannah Rich and Esmé Partridge of their helpful comments on an earlier draft.

[2] J.D. Vance: President Trump is looking after American citizens

[3] https://www.vatican.va/content/francesco/en/letters/2025/documents/20250210-lettera-vescovi-usa.html

[4] Leviticus 19.33-34. The word for foreigner here, gerim, may be legitimately translated as refugee rather than simply immigrant, because the root carried connotations of strife, and usually also carries the connotation of someone who had thrown in their lot with the Hebrew people. Other Hebrew words sometimes translated as foreigner do not usually come with similar demands on hospitality.

 

 

 

Ethics and Faith in a Competitive Market Economy

We are pleased to introduce an initiative designed to support those in the private sector and develop their thinking in matters related to faith, ethics, business and economics. We aim to provide a dedicated space to examine the moral underpinnings of business and how contemporary issues may affect practitioners. Most of our engagements will be through regular evening gatherings which will feature insights from one or two guest speakers followed by a drinks reception.  We hope to offer participants the opportunity for both intellectual growth as well as fostering relationships with like minded peers.

 

The first of these took place on 6th May on the theme of “Ethics and Faith in a Competitive Market Economy” in the Vestry of St Mary-le-Bow Church in the City of London. 

Our Director Philip Krinks spoke on the general topic first and was then followed by Ernie Graham who spoke on the topic of his previous blog post ‘Competition – Not only Ethically Positive, but Necessary’

To receive notice of forthcoming events join our mailing list.

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The Role of Business in Social Welfare

The Role of Business in Social Welfare

James Perry

I started my career working for a great Quaker business, Cadbury Ltd. As a trainee I was fascinated by what made the business tick, and so I became friendly with the in-house librarians. Their role was to curate the organisational memory of a business that had been founded with social as well as financial goals, as part of the temperance movement. Chocolate as a weapon against gin, Cadbury as a social intervention, to tackle social distress and human indignity and to model community – while making money.

And then I watched as a new regime in London took over and undertook an internal change programme bluntly named ‘Managing for Shareholder Value’. The librarians lost their jobs and I watched the founding values being systematically extracted from the business, on the basis that they were getting in the way of ‘shareholder value’.

When my brother and I began our own business, we were naïve. Years before, our parents had started a craft baking business, which employed mostly recovering addicts. While this turned out to be a disastrous recruitment policy, it reinforced the idea to us that there was a choice about what sort of business one might create: on the one hand the early Cadbury business’s purpose-led approach; on the other the shareholder-value one latterly imposed on Cadburys. We didn’t even think about it; we opted for the former.

But we needed risk capital to grow the business, and it was only after numerous discussions with venture-fund managers that we realised that the choice we thought we had was an illusion. Fund mandates, operated quite properly by venture fund managers, could not accommodate a desire to create social or environmental value. Their mandate, and so their legal duty, was only to create financial value for their investors.

Inadvertently, a system was created where entrepreneurship in the UK was monocultured into profit. All of the broader, human goals that every entrepreneur starts out with were being systematically extracted by the financial markets, much as they were from Cadbury Ltd, ‘managing for shareholder value’. Thus King Midas was institutionalised into our society.

In the event, my brother and I went on a hair-raising journey to finance our business without surrendering our purpose, which is a cracking story but not one for today – suffice it to say, we entered the financial collapse ridiculously over-leveraged. Literally overnight we then watched our bank go bust, our sales plummet by 15 per cent; we breached every covenant with our now-broken bank; a terrifying, cavernous cash hole opened up beneath our feet.

In the subsequent two-year fight for our financial life we learnt a lot about the spirit behind the invisible hand and about who your friends are. It was these friends who enabled us to avoid a distressed equity sale and hence protect our ability to retain our social purpose.

Mercifully the business is now scaling, debt-free and cash generative, and employs around 700 people. In retrospect it was a terrific experience and one that left me fascinated by this question of the social purpose of business and of investment capital. I have spent the last eight years researching and experimenting in this field.

During the twentieth century an orthodoxy emerged in business schools that ‘the social responsibility of business is to maximise profits’. The rationale for this was based on evidence – business is the greatest source of wealth creation, innovation and employment known to humankind. The data suggested that as economies liberalised and developed, everyone benefited. Social responsibility was outsourced. Governments took responsibility for solving social problems and charities sought to clear up behind them. For a while it sort of, on the face of it, worked.

But the twenty-first century is starting to tell a different story. On the one hand, capital markets have become more sophisticated as information has experienced a revolution. As capital has become more mobile and intermediated we have seen it blown into great drifts, leaving the rest of the landscape sparsely covered. On the other hand, government is increasingly unable to honour the social contract and retain legitimacy. For many charities the scraps from the table become ever scarcer.

But all the hand-wringing over tax avoidance, executive remuneration, lobbying influence, zero-hour contracts, social immobility, widening inequality, predatory lenders and so on is to rage at the symptoms. Why are we demonising people for working the rules of the game? And what is the actual cause of these symptoms? I rather respected the Google CEO Eric Schmidt when he toured Europe a couple of years ago to make the point that it is his legal duty to legally avoid paying tax. He pays higher returns to investors – his fiduciary responsibility – when he mitigates tax liabilities. His point – that he would be happy to play by different rules but that it isn’t his job to set them – seemed a fair one to me.

So there is a big challenge here. The paradigm under which our society was conceived – where business’s role is to maximise profits; government’s is to get out of the way of this wealth creation and use tax revenues to solve social problems; charity’s is to mop up after the other two – is no longer fit for purpose.

The misalignment between business and society is acknowledged in its institutions. They are created to oppose each other and compete, locked in a zero-sum game: HMRC versus the tax accountancy industry; the CBI versus the TUC; environmentalists versus extractive industries; the financial services industry versus the FCA; big business versus the competition authorities; private versus public; labour versus capital.

That it is failing is obvious. But how do we respond in the face of such a systemic flaw? The core of it must be the concept of alignment – when we align interests, we are able to collaborate rather than only compete. Much like Hegel’s Geist, if you’re that way inclined.

Economists will tell you that there are three inputs: land, labour and capital. Well, Marx valued the labour at the cost of the others; the Greens value the land at the cost of the others; and our current economic system values capital at the cost of the others. It is becoming increasingly obvious that our economy needs instead to value all three, together, in harmony. But how do we do this? The frontier of this question is the place where government, civil society and business meet.

We have three million organisations in the UK. Of these, 2.7 million are companies limited by shares, focused on creating financial value. Some 300,000 are ‘civil society organisations’ such as registered charities, companies limited by guarantee, community interest companies, co-ops and industrial provident societies. They are focused on creating social and environmental value.

What distinguishes the 300,000 from the 2.7 million is the concept of an asset lock. All of those civil society organisations have some sort of asset lock, or bar on financial distributions. This is how we determine that they are, indeed, social – rather than a vehicle for private interest. The unintentional effect of this asset lock is to exclude social purpose organisations from the capital markets. Perhaps more significantly, it is to exclude the capital markets and business from explicit social purpose. This in turn has the effect of ensuring that any economic value created by social-purpose organisations is incidental and that any social value created by business is also incidental.

The future, therefore, lies in ending this Berlin Wall between civil society and the capital markets. It lies in expanding the concept of fiduciary responsibility to allow for the creation of social value, and in expanding the concept of social value to allow for the creation of economic value.

This future was elegantly illustrated by the first social impact bond in 2010, where private investors contracted with government through a social-purpose partnership to intervene with short-sentence male offenders. If the private investors could reduce recidivism, they would be paid out of the savings made by government. The private investors then contracted with charities to deliver a broad set of interventions with those offenders to help them put their lives back together. Because they had skin in the game, the private investors were focused on the outcomes in a way that government could not be. Why this first social impact bond has caught the imagination is because of the big idea at its heart: achieving alignment between the creation of social and financial value. Great things are possible when the incredible skills and talent in the financial markets and business are put to work to solve social problems in a way that creates value for both society and investors.

The social impact bond market and the social investment market as a whole continue to develop – the UK is seen as a world leader in this emerging field, with Big Society Capital, the new Access Foundation and so on. Over time this may well have a profound impact on government and how it operates. But an even bigger strategic transformation in the role of government and charity will come if the role of business is allowed to change.

A strategy director of a global business recently gave me his personal definition of business. He sees it simply as ‘a tool for the efficient organisation of tasks’. Business people, like everyone else, can see the increasingly obvious flaws in the system design, and for them it is personal – winning the game under its current rules often makes them a pariah. So there is a new breed of business leaders and investors whose response to all this is to use the profoundly powerful tool of business to create social and environmental – as well as shareholder – value; ultimately, to use business as a means to solve social problems.

This is not such an outlandish idea as it may at first appear. It is after all already the case that business meets social need when it delivers quality goods at reasonable prices and when it creates and distributes wealth – including wealth in the form of jobs – throughout society.

So these entrepreneurs are challenging the core bipolar principle of our system design: that they must either, on the one hand, be excluded from intentionally creating social value; or, on the other, be excluded from capital markets. The most tangible example of this is the global ‘B corp’ movement. Business leaders from around the world have come together to challenge and change the system. Thus far it has benefited from bipartisan political support. Launching such a movement in the UK was a core recommendation of the G8 Social Impact Investment Taskforce, established by the Prime Minister in 2013.

In September 2015, B corps will launch in the UK with a community of business leaders who are using their businesses to solve social and environmental problems. They range in industries from financial services and investment fund managers to consumer brands; from technology businesses to outsourced public service providers. By using the tool of business to solve social and environmental problems, they can scale. By having clear measurement and analytics tools, they create the possibility that all businesses can measure what matters and move beyond the ‘single bottom line’. Notably, one of the biggest companies considering certifying as a B corp in the UK is a global professional services firm, interested because they recognise the importance of measuring social and environmental – as well as financial – value.

The future for social welfare does not lie with government trying to do it all alone, with some help from cash-strapped charities. It lies in a new system where government, business and charities all play their part. Separately, pulling in opposite directions, none of them can respond to the challenges of our time. Aligned, pulling together, they can.

Welfare and the Common Good

Welfare and the Common Good

Maurice Glasman

First, it is always an honour to be invited by Lord Griffiths to anything and I always try to accept. He has been a true friend to me since I entered the House of Lords; that is a rare gift to be given and I treasure it.

It is all the more precious as we are of different religions, different parties, and if my younger self could glimpse me saying these words to the head of the policy unit under Margaret Thatcher and a vice president of Goldman Sachs, then there would be a scandalised disbelief. Life itself is the teacher and I am grateful for the lessons it has taught me. Not the least of these, which is important in the discussion of poverty, is the inheritance of Catholic Social Thought, with its stress on vocation and value, on a balance of interest and relationships; a tradition that also understands that we are fallen and capable of vice as well as virtue, a narrow selfishness as well as self-interest broadly conceived. It is also a tradition that does not think that the free market created the world. There is something inherited in that as well.

It also is fond of paradox, something that sounds wrong but is right, and not the least of these paradoxes is that while there is no alternative to the market, the market is no alternative. It creates unprecedented wealth but also an unprecedented poverty – a poverty of inheritance that leaves people without assets and in debt in a monetised economy. That is a more complex form of poverty in which access to common lands is forbidden through enclosure and there is little participation in a common life; a world in which you are on your own in a radically new way, in which it is your responsibility to find your way with no inheritance. Progress for many people is seen as a systematic dispossession. This is because capitalism poses a radical threat to the notion that human beings and nature, the substance of creation, are anything other than commodities. It tries to exploit both through creating factor markets in labour, land and food, in things that are obviously not created as commodities to be bought and sold. This, however, is what happens to you when you are in debt, as we see in Greece. Its inheritance is being privatised and it is very unclear out of what the value is to be created. The accompanying tragedy is that the state did not create the world either, and nor were people created as administrative units. Poverty is a problem of a lack of humanity, so we need to look to the restoration of human-scale solutions for its alleviation.

While there is a structural and material aspect to poverty, which is extensively researched, I work with a definition of poverty by enquiring as to whether the monetised essentials of life are affordable on a basic wage. While poverty is not caused by welfare, it is not eradicated by it either. The move towards a living-wage economy is a fundamental one in ensuring that people do not work for their poverty. Outside London, £9.40 an hour is a reasonable amount to live a dignified life. It creates incentives to virtue rather than vice, to work and to be able to fulfil fundamental responsibilities to others through your work. It is a foundation stone of a new consensus built around work rather than welfare, but if we consider poverty to be a discussion exclusively about material possessions or spending power at any given moment, then we will get stuck in static definitions and a tax-and-spend Gini coefficient conversation that has not changed the dynamics of polarisation and the increasing divisions of wealth.

A politics of the common good requires a different way of talking about inequality, welfare and the relationship between the market, state and society in the practice of mutual responsibility and the question of how we care for each other. In this, virtue and vocation, responsibility and reciprocity have to play an important role but the two key and primary concepts are those of inheritance and relationships. This is a way of looking at poverty that asks what we pass on to the next generation, in which the ideas contained within a social contract are changed into the notion of a covenant between the generations. This covenant is orientated towards the safeguarding of creation, a preservation of liberty and democracy within an orientation towards the good of a commonwealth and a common-good that is ultimately to pass on liberty, prosperity, civic peace and a sense of mutual responsibility to the next generation, undiminished and, if possible, enhanced a little bit.

I believe that there is a space to build that common good politics in place of the collectivist and exclusively individualist and materialist alternatives that have dominated politics over the last 60 years. In this a renewed body politic would lessen the administrative penetration of the state through a renewed role for the Church, for universities and vocational colleges, for city councils and business to craft a common good around the strengthening of family life, the place you live in and the ethics of work, with an emphasis on virtue, defined as ‘good doing’ rather than ‘do gooding’, the corporation itself rather than corporate social responsibility for example. In other words, a politics in which skilful work is honoured, recognised and rewarded within a system that gives incentives to virtue rather than to vice. A vocational economy if you like.

Marvin Gaye’s question of ‘What’s Going On?’ is logically prior to Lenin’s question of ‘What Is To Be Done?’ What’s going on is centralisation of financial and political power, an excluded and estranged population and widespread anxiety relating to how people can fulfil their obligations to their loved ones.

What remains elusive now in the debate around welfare reform is an understanding of relational poverty (how people find themselves isolated and powerless), institutional poverty (a dearth of belonging and participation within institutions that uphold a specific good and practice) and also knowledge poverty (where people are cut off from a tradition of understanding that is intergenerational and related to specific practices).

In terms of the changes that are required in the political economy, there are three essential ones that are required if poverty is to be addressed in practical terms. The first change concerns the establishment of a vocational economy within which apprenticeship and skill are taught, sustained and recognised through democratic institutions that regulate labour-market entry. Reciprocity requires having something to give as well as take, and if you have a vocation then that is a good relational start. One of the successes of the German economy is that vocation is given a central place in the organisation of its labour market. Vocation includes within itself a calling, or something that is appropriate for the person that comes from within, to work that is authentically your own and not defined exclusively by its external rewards or demands but characterised too by internal goods rooted in a tradition of practice. A vocation requires discipline and judgement, good doing, and constrains vice through the concept of good practice, institutionally enforced. Honour, skill, loyalty and dedication are necessary for the preservation and renewal of value, which is judged by other practitioners and not exclusively by the price system.[1] What academics call ‘peer group review’ is built into the vocational system. It allows for an inheritance to be received, renewed and passed on. It places work, not exclusively as the immediate fulfilment of a task but as something received from the past and orientated towards the future. Vocational institutions valorise labour and promote virtue. The internal goods preserved by vocational institutions are a direct threat to the domination of capital but necessary for its successful reproduction.

We need to address the failures of an exclusively academic framework for further and higher education in which there is tremendous working-class and immigrant failure as well as a lack of skills in the economy. The most important structural changes would be to close down half the universities and transform them into vocational colleges, jointly run by local business, the unions and local political representatives. Vocation would bring intergenerational relationships through the apprenticeship system, also bringing older and retired workers into a constructive relationship with the economy and with younger people. It would establish a tradition of good practice that would address knowledge poverty and bring a sense through which people can earn and belong, in the words of Jon Cruddas.

The second fundamental economic reform that would address the impoverishment of a local inheritance is the endowment of regional banks that are constrained to lend in their area through using part of the bailout. One of the fundamental causes of contemporary poverty is debt and the emergence of usurious financial institutions. Regional banks are a central part of the new institutional ecology in that they resist the centralising power of capital, allow a more stable access to credit for regional and smaller businesses and encourage relationships and reciprocity to constrain the demand for higher rates of return that have decimated the mutual bank sector in Britain. Ten per cent of the bailout should be used to endow these Banks of England through which local people could have access to credit, start businesses and a more humane and locally embedded form of banking could be established.

The third aspect would be corporate governance reform so that workers can exercise a balance of power with capital in the governance of firms. Corporate governance representation for labour addresses the necessity of a form of accountability that does not claim all advantage for one side and that can restrain cheating, greed and avarice in the working life. The specific technique developed within Catholic Social Thought was a form of relational accountability, in which the real physical presence of the workforce on boards required a sharing of information regarding the firm and the sector, a negotiation of modernising strategy that was not set exclusively on terms beneficial to capital.[2] The unilateral pay rises given to themselves by managers could possibly be constrained by the presence of a workforce that could question their legitimacy on the basis of a real internal knowledge of the firm.

It is the absence of relational accountability, the lack of internal constraint on capital and the absence of the labour interest that provide the fundamental explanation of the crash of 2008. The financial crisis was generated by the concentration of capital, a lack of accountability so that money managers could lie, cheat and exaggerate without any specialist interests with knowledge of the internal working of the firm that could challenge them. We learnt that accountability is too important to be left to accountants. It was a crisis of accountability, of a lack of virtue and of ‘incentives to vice’ in the form of bankers’ bonuses and unilateral self-remuneration. It was also a result of the relentless demands for higher rates of return. These turned out to be speculative and fantastical. There was no vocation or virtue in the governance of the financial sector, and the key to its remedy lies in the expertise and interests of labour, who through their representation in the firm could hold the unvirtuous elites to account and bring about the necessary cultural change required to break out of the present malaise. Responsibility and power need to be shared in order to be effectively exerted.

Relationships, reciprocity and responsibility

In terms of welfare reform a similar process of moving away from the unilateral domination of management and towards a balance of interests in the governance of institutions such as schools and hospitals is required, so that their corporate governance is based on a third funders, a third workforce and a third users. This would initiate the workforce and users into the complexity of running large institutions, create a greater sense of ownership, constrain the fantasies of relentless restructuring and create an ethos or common good within the organisation.

The second reform relates to what is sometimes called ‘relational welfare’. I have mentioned that human beings should be understood not as either selfish or altruistic but in terms of ‘self-interest broadly conceived’. This is based philosophically on a broadly Aristotelian reading of persons in which human flourishing is understood as bound up with the well-being of family, friends and colleagues and not opposed to that. David Brooks’s The Social Animal: The Hidden Sources of Love, Character, and Achievement gives a good account of the extent to which many different forms of academic research are clustering around the propensity of all things to move into a relationship with other things, and most particularly human beings.[3]

We are social beings who find meaning in relationships with others, and it is these relationships that are the source of our flourishing and power, rather than qualifications or formal status. One of the problems with the previous political economy was its tendency to individuate and collectivise, so that relationships were neglected. Relationships are a source of power in that they generate trust and a sense of a shared destiny between people who would otherwise be estranged. Relational welfare would give incentives for people to meet and do things together, rather than put the emphasis on individual care packages, career plans and CV skills.

A third area relates to the more political issue that there is a large defection from the existing means-tested benefit system among the working class. It is seen as unfair in that people who have not put into it are sometimes beneficiaries, and as inhibiting virtue by rewarding irresponsibility and indolence. With the impact of austerity, this is moving from an irritation to a central political concern. This is at a time when it is undoubtedly the case that there is going to have to be greater welfare provision for social care, the National Health Service and pensions. There is a loss of trust in unmediated state provision, which echoes a further loss of trust in politics and political leadership. A meaningful structural reform would be to generate four contributory mutuals within the National Insurance system that would be owned and administered by those who make a contribution in the areas of social care, pensions, health and social security. It is important that those who care for their parents and children would be viewed as giving, so that there would be incentives to strengthen relationships. This would also provide an incentive for participation and engagement, as interests would be involved.

What needs to be questioned is the reliance on the state and the market as the two essential instruments. There needs to be a stress on relationships and virtuous institutions, a balance of power in the corporate governance of public and private corporations and a common good forged through the reconciliation of estranged interests. Ugly politics leads to ugly governments. A politics in which the rich or the poor are demonised is a bad politics and can end badly for both sides. The stakes are high but the quality is low. It is up to us to build a common good and raise the level – maybe we could call it the spiritual level.

Notes to Chapter 3


[1] See Papal Encyclicals, Centesimus Annus (1991), paragraph 32, and Laborem Exercens (1981), paragraph 18.

[2] See Papal Encyclical, Quadragesimo Anno (1931), paragraph 132.

[3] David Brooks, The Social Animal: The Hidden Sources of Love, Character, and Achievement, New York: Random House, 2012; see ch. 1.

A Welfare Society

A Welfare Society

Brian Griffiths

The welfare state

A market economy can be a harsh reality for those who work in it. A fall in the world price of a commodity can lead to the closure of a business. A new technology can make jobs redundant. A financial crisis in Asia can lead to rising unemployment in Europe. Economic cycles appear to be a lasting characteristic of market economies. When compounded by problems such as industrial injury, disability and physical and mental illness, a market economy can prove a challenging environment.

It is because of this that ever since the Industrial Revolution there have been moves to protect the vulnerable from the uncertainties of markets and compensate them for its worst effects. In the nineteenth century, voluntary organisations such as friendly societies, trade unions and savings institutions provided services to help families be self-supporting. They were not charities. These were clubs that people joined and to which they paid in contributions, which they could then draw out at a time of need. In the early twentieth century the UK government introduced a compulsory national insurance scheme for all working people, which provided retirement pensions. The government of Clement Attlee (1945–50) extended state provision and laid the foundations for the modern welfare state, which won general approval from the public.

Seventy years on the picture looks very different. The modern welfare state has lost public support and faces a crisis of legitimacy. The 2015 edition of the official government survey ‘British Social Attitudes’ reports that public support for welfare spending has been in long-term decline. Those supporting the statement ‘government should be spending more on welfare benefits for the poor’ fell from 61 per cent in 1989 to 30 per cent in 2014.[1] Within this, pensions and disabled people were a priority, unlike benefits for single parents and unemployed people.

One reason for the loss of public support is that welfare spending fails to reward hard-working people who have contributed to the system and subsidises a minority who have not. A few days after the summer budget of 2015, which aimed to move the UK from a high welfare society to a lower welfare economy, a national newspaper published a letter that expressed the sentiment of many:

Sir, I have worked hard and paid taxes for 45 years, and apart from child allowance, never qualified for tax credit. I have brought up three children, all of whom have been through university. I have paid off my mortgage and have no debts, as I live within my means. My gross pay is £26,000. Why should I pay for people to receive more through social security payments than I earn?

Some years before this, the journalist John Humphrys of BBC Radio 4’s Today programme spent 12 months travelling around the country researching the state of welfare in Britain. He claimed in the resulting late-2011 BBC Two television programme that a culture had grown up in which people had a sense of entitlement that the state owed them a living. His overall conclusion was that:

In my decades of reporting politics I have never before seen the sort of political consensus on the benefits system that we seem to be approaching now and our poll suggests the politicians are reflecting a changing public mood.[2]

The same sentiment was echoed in a controversial Channel Four television series, Benefits Street, which documented the lives of several residents in James Turner Street in Winson Green, Birmingham, in which it was alleged that 90 per cent of residents claimed benefits.

These views have been confirmed by opinion polls.[3] One that was conducted in 2004 for the centre-left think tank IPPR, and which is fairly representative, found that 78 per cent of people surveyed agreed with the proposition ‘the system does too little for people who have contributed’ while 76 per cent agreed with the statement ‘it is too soft on people who could work but don’t’. This was found to be not simply a right-wing view, because 75 per cent of Labour voters who were polled lined up for the first view and 65 per cent for the second.[4]

A second reason welfare has lost support is because of the dependency culture it has created. More than 20 million families in the UK are dependent on some kind of welfare benefit (two-thirds of all families), of which pensioners account for 8.7 million. For 9.6 million families, benefits account for more than half their income. Some people face little incentive to return to work because of the loss of benefits. For an unemployed person with several children, entitled to unemployment benefit, housing benefit, child tax credits and free prescriptions, net take-home pay from employment may not be much greater than income from benefits. Today there are 3.6 million households in the UK in which nobody of working age is in paid employment but dependent entirely on social security. In some housing estates three generations of families have never worked. One million people have been on incapacity benefit for over a decade. Housing benefit has increased from £9 billion in 1990 to roughly £25 billion at present. Christian Guy, formerly the director of the Centre for Social Justice, captured the spirit of William Beveridge and put it crisply: ‘the welfare state should be a life-boat not a cruise ship.’[5]

A third reason social welfare is a problem is cost. Expenditure on social security payments, including pensions, is running at £220 billion per year. Britain has 1 per cent of the world’s population, generates 4 per cent of the world’s income and pays 7 per cent of the world’s welfare spending. In 1980, welfare benefits paid to people of working age amounted to 8 per cent of all public spending. By 2014 that figure had run to 13 per cent. The original tax credit system, which was introduced in 2003, cost £1.1 billion in its first year. Today it costs £31 billion per year.[6]

The welfare bill has grown like topsy and proved a nightmare for politicians to get under control. In his 2015 summer budget speech the Chancellor of the Exchequer quoted Frank Field, a Labour MP and chairman of the House of Commons Work and Pensions Select Committee, as well as one of the great authorities on the subject, as saying that the present system was simply ‘not sustainable’. More surprising perhaps was that soon after, Harriet Harman, the interim leader of the Labour party, told leadership candidates not to oppose welfare cuts because the electorate had twice rejected a Labour manifesto that stated that welfare spending would not be cut.

A fourth problem is that the welfare budget is not perceived as addressing the real causes of poverty. This is partly because of the way poverty is defined and measured. The present official method of measuring poverty is closely connected to the original approach taken by Charles Booth and Joseph Rowntree at the beginning of the twentieth century. They were meticulous in their research and through it they wished to determine the income level that enabled families to achieve a minimum decent standard of living. Those families with incomes below that level were categorised as poor while those above were not. The Child Poverty Act 2010 defined poverty as households with income below 60 per cent of median income. According to this definition, one in five of the UK population today live in poverty.

This approach suffers from three weaknesses. First, it leads to some curious results. During the recession that followed the financial crisis, the number of children living in poverty fell, not because they were better off but because median incomes declined. Similarly a small rise in the state pension will increase average income and with it the number of children living in relative poverty. Second, it is a statistic that measures inequality not poverty. It says nothing about the percentage of children who have failed to meet standards of literacy and numeracy in schools, the percentage of children in workless households, the number of people who suffer from hunger and so on. Third, it fails to shed light on more searching questions regarding the causes of poverty. Why do certain children suffer from a lack of educational achievement? Why do some parents have poor parenting skills? What is the impact of family breakdown on poverty? What can be done to break the cycle of children living in poverty today growing up to be parents living in poverty tomorrow?

A fifth and final reason the present welfare system has lost public support is because of its impersonal nature. Welfare provision has become synonymous with a hugely centralised and complex system of cash payments from central government to individuals. In the friendly societies and trade unions of previous generations there was a personal element involved. Those who collected subscriptions from members and ensured they were paid when need arose had a personal relationship with them. They knew of their circumstances. They lived in their neighbourhoods. They were part of their communities. Welfare payments today have become just another transaction. As a result, the growth of a highly centralised welfare state has been at the expense of those mediating structures that involved personal participation in a local community and typically emphasised an ethos of work, self-support and saving.

The overall result of this is that the welfare state today has lost public support because it is centralised, impersonal, bureaucratic, complex and disjointed.

And who is my neighbour?

In many countries with a Christian tradition, such as Britain, the debate on welfare has deep roots in a Christian understanding of the dignity of the human person, responsibility of caring for the vulnerable and improving the lot of the excluded and poor, and the importance of work. Many friendly societies of the nineteenth century had a religious foundation. The first labour exchange was set up by the Salvation Army in Upper Thames Street in London in 1890. The term ‘welfare state’ was first used by William Temple, Archbishop of Canterbury, in the early 1940s.

The parable of the Good Samaritan (Luke 10.25–37) is one of the most compelling stories Jesus ever told and relates directly to helping people in need. The context was a question addressed to Jesus by a lawyer who was a recognised expert in interesting Jewish laws that Moses had set down in the Torah. ‘Teacher, what must I do to inherit eternal life?’ (v.25). In other words, how should we live now to qualify for life in a future world? Jesus responded with further questions, ‘What is written in the law? What do you read there?’, to which the lawyer answered with two quotations from the Torah, ‘You shall love the Lord your God with all your heart, and with all your soul, and with all your might’ (Deuteronomy 6.5) and ‘your neighbour as yourself’ (Leviticus 19.18). Jesus acknowledged this as the right answer and added ‘do this and you will live’. Quick to look for a loophole and to embarrass Jesus, the lawyer asked a further question, ‘And who is my neighbour?’, something that was a highly disputed issue at the time.

The story relates to a man travelling from Jerusalem to Jericho who was attacked by a gang of robbers who took his clothes, beat him and left him naked and apparently half dead. By accident a priest was travelling down the same road, saw him but consciously walked by on the other side. Similarly a Levite, one of the administrative staff employed at the Temple in Jerusalem, was also travelling along the same road; he saw the victim but again avoided contact with him. Finally a Samaritan, a foreigner, a heretic and a sworn enemy of the Jewish people saw him, had compassion on him, gave him first aid, disinfected and bandaged his wounds, lifted him on to his donkey and led him to an inn. The following day he gave the inn keeper two silver coins with the request ‘Take good care of him. If it costs any more, put it on my bill – I’ll pay you on my way back.’ Jesus then questioned the lawyer as to which of the three did he think was neighbour to the victim. The lawyer replied the one who treated him kindly, to which Jesus responded ‘go and do the same’.

This was a realistic story. The winding road down from Jerusalem to Jericho, roughly 17 miles and through rocky and barren countryside, was known to be dangerous because of frequent attacks. Any parable, however, leaves a great deal to the imagination, and this is no exception. The victim was most probably an Israelite. The priest and Levite might not have been bad people. They might have thought that because he looked as if he was half dead there was little they could do. Or they might have thought they had insufficient knowledge to be able to help him. Or they might have thought the robbers were still nearby and would pounce on them next. Or they might, as professional religious people, have had qualms about defiling themselves ritually because of contact with blood and a dead body. What is not left to the imagination is that they passed by on the other side of the road.

The Samaritan’s response was different. He saw him and went to his aid. His response was more than empathy, simply identifying with him mentally. The import of his response is not adequately conveyed by expressions such as ‘he took pity’, ‘he was moved’, ‘he had compassion’. The Greek verb suggests something much stronger. It was as if he was struck by a bolt of lightning that left him completely shaken. His response was visceral rather than rational. He felt compelled to act. He committed himself to helping the wounded man regardless of the danger involved, and in the way he did it was generous both with his time and his money. The point of the parable is that it turns the lawyer’s question on its head. The Samaritan did not ask ‘Who is my neighbour?’, hoping to be able to divide the world into neighbours and non-neighbours. He found himself asking a more searching question, ‘To whom am I a neighbour?’ For the lawyer the term ‘Good Samaritan’ was an oxymoron. To discover that the wounded man had been helped by a racial enemy, someone from outside of the community, was not just a surprise but a scandal.

We all in one way or another aspire to be a Good Samaritan. By asking the question ‘Who is my neighbour?’ we are seeking the timeless quest for a loophole to divide the world into neighbours and non-neighbours. The lawyer was searching for a clear definition that set a precise boundary. Thomas Walter Manson suggests that the question asked by the lawyer is unanswerable.

For love does not begin by defining its objects: it discovers them. And failure in the observance of the great commandment comes not from lack of precise information about the application of it, but from lack of love. The point of the parable is that if a man has love in his heart it will tell him who his neighbour is: and this is the only possible answer to the lawyer’s question.[7]

Can the parable of the Good Samaritan help us in thinking about welfare policy and the welfare society? Before we explore this we should remember that there was in Israel at the time of Jesus a system of social welfare: every three years one tenth (tithe) of that year’s annual produce was to be given and stored as a source of help for the poor. This was part of a much larger welfare society in which the laws relating to social and economic life were based on Jewish religion, ranging from weights and measures to social provision.

Social welfare provision in the political economy of ancient Israel was comprehensive, mandatory and personal. It was a duty of care charged to each member of the community for the welfare of the poor, the widow, the orphan, the homeless and the stranger. It was complementary to a social programme of welfare provision enabling all to share in the gleaning of the annual harvest, to call on the social fund created from the triennial tithe and to have on the Sabbatical year debts cancelled – though it is doubtful whether this system was ever implemented as such.

The spirit with which welfare was to be provided was generosity.

If there is among you anyone in need … do not be hard-hearted or tight-fisted towards your needy neighbour. You should rather open your hand, willingly lending enough to meet the need, whatever it may be. Be careful that you do not entertain a mean thought, thinking, ‘The seventh year, the year of remission is near’, and therefore view your needy neighbour with hostility and give nothing … Give liberally and be ungrudging when you do so. (Deuteronomy 15.7–10)

What lessons can we draw from our Judaeo-Christian heritage in thinking about welfare? First, we should start by stating the obvious, which is that we as individuals, and we as members of a society, have a moral responsibility to care for those in need. The primary reason for reforming social welfare is not to help HM Treasury to balance the books, tackle the estimated £1 billion benefit fraud or deal with ‘scroungers’ and ‘benefit tourists’. It is to shape a society in which those who are elderly, disabled and vulnerable are cared for and those who can work and are able to save are incentivised to do so. As a society we have responsibilities to those less fortunate than ourselves.

Second, we need to distinguish between a welfare state and a welfare society. A welfare state administers the provision of benefits provided by the state and paid for by taxpayers. By contrast, a welfare society has three components: welfare provided through the state; welfare provided through a range of voluntary and charitable organisations, including religious institutions; and neighbourliness, namely welfare provided by people caring for individuals or families suffering from loneliness, isolation and deprivation in the communities in which we live. Perhaps the most basic of all the elements of a welfare society is the family, in which children are shown love, cared for and taught the values that are important in life, which is why public policy aimed at strengthening family ties is so important.

Over recent decades the culture of our society has become more individualistic and less public spirited. The bonds that bind people together in civil society have loosened. The British Attitudes Survey has documented the reduction in the number of people who wish to be actively involved in their communities – whether as volunteers, school governors, members of a Neighbourhood Watch Scheme or leading Scouts and Guides. The great challenge in strengthening our welfare society today is how to revive the declining sense of mutual responsibility in life and reverse the general loss of ‘neighbourliness’. If the parable of the Good Samaritan has one overriding message it is that people become involved with others when they are moved to have genuine compassion for those in need. This is not something governments can easily effect. It may be prompted by a television news item, a chance meeting, a front-page newspaper photo or the plight of a friend.

There is a third leg important to the Christian understanding of social welfare, and that is the importance of work. The significance of work derives from each person bearing the divine image. The nature of God is to create and work, and in this we as creatures reflect the creator. A job well done is the satisfaction that derives from work, whether paid or unpaid. Work allows each person to express their talents and personality. It is natural for men and women and from it we derive not only satisfaction but a reservoir of self-worth and dignity. Work in itself is rewarding and a service to God. It is because of this that involuntary unemployment is an evil. It is something alien to our nature. We want to work and yet the jobs are not there. The same is true of benefit dependency, in which the state has created incentives that make work unattractive. Not working in this situation is not only a source of long-term poverty, it undermines self-worth and ambition and leads to depression and illness.

Thinking through the principles

People have put forward many different principles as the basis for welfare reform: compassion, justice, reciprocity, contribution, contracts, mutualisation, participation, penalisation and localisation. Which should guide us?

One principle is that of contribution and reciprocity. With the exception of the elderly, disabled and vulnerable, social security should be a safety net in the way proposed by Beveridge in the 1940s, rather than some vast merry-go-round drawing increasing numbers of benefit recipients into its orbit while at the same time requiring them to pay indirectly for their additional benefits through general taxation.

The starting point of Beveridge’s proposals was that in a free society persons who could work had responsibility to earn an income with which to make provision for themselves and their dependants: ‘Management of one’s income is an essential element of a citizen’s freedom.’[8] He claimed that people had come to regard thrift as a ‘duty and pleasure’.[9] John Maynard Keynes had proposed a solution to the mass unemployment of the 1930s and Beveridge believed that a return to full employment was a realistic prospect in the post-war years, which turned out to be correct.

From time to time people would suffer a loss of earnings because of unemployment, injury and sickness, as well as having extra outgoings at times of birth, death and marriage. To deal with this Beveridge proposed a national or social insurance system in which risks were pooled and underwritten by the state. He rejected a system of voluntary private insurance much as we have today for cars, homes and travel. The system was compulsory for all working people. Each paid in flat-rate contributions and when occasion arose each was paid out flat-rate benefits. There was to be no means testing.

This structure rested on key judgements. First, benefits should be paid out in return for contributions, rather than free allowances from the state, which ‘is what the people of Britain desire’.[10] He made it abundantly clear that social security as envisaged in his report was not a plan ‘for giving to everybody something for nothing’.[11]

Next, payments were to be made into a national Fund. If the resources of the Fund proved inadequate, contributions should be increased. The reason for creating a Fund rather than paying for the scheme through general taxation was to make it clear that benefit payments did not come from a bottomless purse.

A future key judgement was that social insurance was intended to be a minimum:

The State in organising [social] security should not stifle incentive, opportunity, responsibility; in establishing a national minimum, it should leave room and encouragement for voluntary action by each individual to provide more than that minimum for himself and his family.[12]

Another principle of welfare reform should be to tackle the root cause of long-term poverty by focusing on the home environment and the early years in order to enhance the life chances of children. For the past one hundred years, by contrast, the focus of removing poverty has been providing more money to less well-off families. This is not unimportant. Soon after becoming Prime Minister in 2010, however, David Cameron commissioned the Labour MP Frank Field to undertake a major rethink of the causes of poverty in the UK, the case for reforming the way poverty is measured and the way a child’s home environment affects their life chances. Frank Field has spent a lifetime working in the field of welfare provision, both inside and outside of parliament and as a minister in the Treasury when Tony Blair became Prime Minister.

In his report he claimed that research suggested that a person’s success in adult life could be predicted by the level of cognitive and non-cognitive skills they possessed on the first day of school.[13] Children who arrived at school in the lower range of ability tended to remain there. More than money income, research emphasised that the factors that mattered for enhancing a person’s life chances were a healthy pregnancy, good maternal mental health, secure bonding with the child, love and responsiveness of parents along with clear boundaries, and opportunities for a child’s cognitive language and emotional development. Good-quality services such as healthcare, children’s centres and childcare also mattered. The key conclusion of this work was that good parenting was critical to improving the life chances of children when they reach adulthood.

The policy recommendation of this approach is to strengthen support for parents through the Foundation Years ‘from conception to age five’, by providing high-quality integrated services across the board, but especially for those from low-income families. As a result, a child from a low-income family but brought up in this environment has every chance of succeeding in life. Perhaps more surprisingly, focusing on the Foundation Years is a better way to achieve a reduction in income inequality.

Finally, it is important that the worlds of welfare (caring, community, neighbourliness) and enterprise (entrepreneurship, aspiration and reward) work together rather than against each other. That is why a growing economy that provides jobs is far better than a stagnant economy as the backdrop to welfare reform. It is also why reducing the government deficit and reining in public borrowing is a necessary step to achieve it.

Notes to Chapter 2


[1] ‘British Social Attitudes 32: Key Findings’, London: NatCen Social Research, 2015, p. 3.

[2] John Humphrys, The Future State of Welfare, 2011, BBC Two.

[3] Ed Cox, ‘Between Priests and Levites: Putting Relationship into the Heart of the Welfare System’, in Nick Spencer (ed.), The Future of Welfare: A Theos Collection, London: Theos, 2014, p. 102.

[4] Cox, ‘Between Priests and Levites’, pp. 102–3.

[5] Christian Guy, ‘Welfare, But on What basis?’, in Spencer, Future of Welfare, pp. 43–51.

[6] Guy, ‘Welfare’.

[7] T. W. Manson, The Sayings of Jesus, Cambridge: Cambridge University Press, 1931, p. 308.

[8] The Beveridge Report, 1942, paragraph 21.

[9] Beveridge, paragraph 21.

[10] Beveridge, paragraph 21.

[11] Beveridge, paragraph 455.

[12] Beveridge, paragraph 9.

[13] Frank Field, The Foundation Years: Preventing Poor Children Becoming Poor Adults – The Report of the Independent Review on Poverty and Life Chances, December 2010.

Moral Questions

Moral Questions

Richard Turnbull

Introduction

Poverty is a scar on humanity.

Samuel Johnson, a high Tory, claimed in 1770 that ‘decent provision for the poor is the true test of civilization.’[1] For R. H. Tawney, a socialist, there is nothing that ‘reveals the true character of a social philosophy more clearly than the spirit in which it regards the misfortunes of those of its members who fall by the way’.[2] Another Tory, Lord Shaftesbury, described the continued cruelty, oppression and indeed deaths of child sweeps as ‘a disgrace to England’.[3]

Today the same agreement on the unacceptability of poverty would cross party, think-tank, academic and faith divides. However, any accord is largely limited to the problem itself. This is a shift historically and potentially damaging to the quest for genuine solutions. The collapse of the consensus over poverty focuses around three questions, although the underlying problem is a deeper one.

First, the debate about measurement. How should poverty be measured? A concern about poverty in an absolute sense (adequacy of food, clothing, housing) may focus on safety nets and a richer role for voluntary societies, whereas an emphasis on relative poverty (the bottom 20 per cent) is more likely to see a greater role for government redistribution. Hence the debate moves from poverty to inequality. To this question we will return.

Second, the debate about the role and size of the state, specifically the welfare state. Tory utopianism in the nineteenth century masked the fact that voluntary charity provision was patchy. However, the provision of universal state benefits also has unintended negative consequences: the squeezing out of the voluntary sector as well as a loss of personal responsibility and moral compass. The state has become the answer to every question. Excessive emphasis on ‘relative poverty’ and ‘income inequality’ distorts the role of the state and leads to an ever-larger public sector, which becomes more concerned with redistribution than with the prevention of poverty.

The suggestion is sometimes made that for advocates of market capitalism the state has no role. However, ‘friends of capitalism do not argue that the state has almost no useful role to play.’[4] To suggest otherwise is potentially very damaging to the cause of poverty relief since creative partnerships between the state, the voluntary sector and the market can play an important role in social welfare. If we are, as a society, to have a sensible, well-informed debate around the common objective of ensuring that as few as possible of our citizens live in poverty, then it is imperative that the role of neither the market nor the state is stigmatised.

Third, the role of the voluntary sector. Intermediate institutions that lie between the individual and the state are the bulwark against extreme individualism and an excessively powerful state. Is it possible to harness the locality, dynamism and community spirit of the voluntary society to the efficient and effective elimination of poverty on a national scale and in a consistent way? Can ‘market-based’ solutions to social evil, with their strong historical precedents, assist today?

There is a long history of a dynamic voluntary sector in the provision of social welfare within the UK, alongside appropriate provision and protections provided by the state. The industrialisation of Victorian Britain exemplifies this approach. Large-scale movements of people, the accumulation of capital, the development of cities all contributed to both economic growth and the complexities of poverty, housing and employment conditions. The voluntary society provided a key response to the challenges of poverty. Leading campaigners such as the Earl of Shaftesbury encouraged the formation of a wide range of local voluntary societies to provide, inter alia, schools, hospitals, training and apprenticeships. The key features were local and voluntary – not a part of the machinery of state. Shaftesbury and other campaigners also understood that the market had a role to play, and they pioneered what we would call today micro-finance and impact investing. Shaftesbury himself was a Tory, a Christian, and passionate about the poor and vulnerable. Voluntary provision was, of course, sporadic and of variable standard, but was particularly successful in reaching the poorest sections of society, those who fell beneath the radar of other provision.[5]

Poverty is no longer a moral problem (around which people unite) but a political one (around which people divide). This prevents some questions from being asked and tends to militate against new and creative approaches. Gertrude Himmelfarb notes, ‘it became a moral principle to eschew moral distinctions and judgments.’[6] She suggests that this ‘de-moralisation’ came about due to the theory that ‘society was responsible for social problems and that therefore society (in the form of the state) had the moral responsibility to solve those problems.’[7]

In order to find and develop solutions to poverty, we need to restore the debate to a moral level. Hence judgements are required over personal responsibility, social policy, the role of the state and the voluntary sector. We need to remember that efficiency is not the preserve of the Right, nor compassion the preserve of the Left.

Poverty and inequality

The confusion that has arisen between ‘poverty’ and ‘inequality’ potentially harms the generally desired outcome of relieving poverty. The poverty charities have bought into the concept of relative poverty. The consequence has been not only the politicisation of poverty but also the politicisation of charity. So, for example, the Joseph Rowntree Foundation defines poverty as follows:

When we talk about poverty in the UK today we rarely mean malnutrition or the levels of squalor of previous centuries or even the hardships of the 1930s before the advent of the welfare state. It is a relative concept. ‘Poor’ people are those who are considerably worse off than the majority of the population – a level of deprivation heavily out of line with the general living standards enjoyed by the majority of the population in one of the most affluent countries in the world.[8]

The usual definition is 60 per cent of median income. In other words, income inequality is the driving force.

If absolute poverty is a moral question, then relative poverty is a political one. The losers are the poorest in society. If the concern is entirely with the ‘bottom 20 per cent’, say, then there are three consequences. First, the emphasis on the relative may actually disguise real abject, soul-destroying absolute need at the bottom of the segment. Second, excessive concern with relative incomes will inevitably lead to an enhanced redistributive role for the state. Third, the greater the weight given to relative need the less focus there is on the reasons for poverty and the exercise of moral responsibility and judgement both in its cause and its solution.

The necessity of economic growth

Too much of the debate about poverty takes place out of context. It is impossible to reflect on poverty, its causes and solutions without an appreciation of the role of the market, the creation of wealth, economic growth and trade.

Economic growth is a contested area. Richard Heinberg asserts: ‘From now on, only relative growth is possible: the global economy is playing a zero-sum game, with an ever-shrinking pot to be divided among the winners.’[9] However, without the wealth creation generated by the market, which leads to economic growth, it is impossible to deal effectively with issues of poverty and social welfare irrespective of the policy prescriptions: ‘higher per capita income is strongly correlated with some undeniably important factors, such as longer life expectancy, lower incidence of disease, higher literacy and a healthier environment.’[10]

To turn to the United Kingdom by way of example, economic growth, measured as GDP per capita in international dollars – hence measuring comparative purchasing power – grew 19 times from 1700 to 2008.[11] Hence there ‘is much evidence that economic growth in recent decades has delivered substantial improvements in living standards’.[12] This pattern of economic growth, wealth creation, adding to the production of goods and services is an essential prerequisite for dealing with poverty.

The need for a market economy

The most effective mechanism for achieving such economic growth is the market economy. As Michael Novak notes:

Of all the systems of political economy which have shaped our history, none has so revolutionized ordinary expectations of human life – lengthened the life span, made the elimination of poverty and famine thinkable, enlarged the range of human choice – as democratic capitalism.[13]

He adds that his definition of democratic capitalism is ‘a predominantly market economy; a polity respectful of the rights of the individual to life, liberty and the pursuit of happiness; and a system of cultural institutions moved by ideals of liberty and justice for all’.[14] The evidence for the positive impact of the market on poverty reduction is insurmountable. Extreme poverty has fallen.[15]

Related to the argument concerning the market and growth is the principle of trade. The market brings buyer and seller together, who trade, to mutual advantage, at the agreed price. William Bernstein tells the extraordinary story and history of trade and the overwhelming mutual benefit humanity has gained from the principle of trade: ‘World trade has yielded not only a bounty of material goods, but also of intellectual and cultural capital.’[16] Hence a reasonable conclusion to draw is that the market system and economic growth are both necessary conditions for the relief of poverty, irrespective of decisions over specific policies. These basic points are lost all too frequently.

However, if the market and growth are necessary conditions for the relief of poverty, are they sufficient?

The market is an efficient mechanism, but it is not perfect. There are problems of monopoly, oligopoly, price fixing and the fact that the market is populated by individuals who are themselves not perfect, but flawed. In the same way that the benefits of the market cannot be ignored, neither can its imperfections. Similarly, economic growth may accrue unevenly. Thus the market may lead to inequalities. Does that matter?

Problems of inequality

There are wide disparities globally in income distribution. The Gini coefficient is the generally accepted standard measure of inequality. It uses a scale of between 0 (everybody has an identical amount of income) and 1 (all the income is owned by one person). In respect of the UK, the Gini coefficient increased through the 1980s (note that the very large reduction in the top rate of income tax inevitably contributed to this rise). From the 1990s onwards the co-efficient stabilised and has since declined slightly. So, for example, in 1979 the Gini coefficient in the UK was 0.274; in 1990, 0.368. However, from 1990 to 2013 we have seen a high of 0.362 in 2001/02, with a modest decline – albeit with fluctuations – to 0.332 in 2012/13.[17]

So in the aggregate, inequality has fallen in the UK over the last 25 years.

However, what the Institute of Fiscal Studies has shown by comparing ratios of different income percentiles is that whereas the ratio of the 90th to the 50th and the 50th to the 10th percentiles has remained largely stable, that of the 99th to the 90th percentile has, albeit with some quite dramatic fluctuations, increased significantly.[18] Hence whereas overall there is stability, the top 1 per cent have pulled away. The income level required to be in the top 1 per cent is £150,000 per annum.[19] More recent government policy has actually targeted the most wealthy – it will be interesting to see what impact, if any, this has on the Gini coefficient.

In any event, one can almost hear the clatter of hooves on the cobbles as familiar hobby horses from the Right and the Left canter out of the stable door.

The question is, does it matter?

In reality there is a tension. If too much emphasis is placed on inequality, and hence on relative poverty, there is the potential danger of loss of focus on those most seriously in need because of an unhealthy obsession with the top 1 per cent of income earners. This is particularly the case if the potential for an increased tax-take is limited – as suggested by the Laffer Curve, which measures tax rates against total tax-take (though politicians and economists will argue over the exact position on the curve). The encouragement of the middle class, of entrepreneurship and SMEs can and will play a significant part in spreading the aggregate economic growth.

There are, however, negative consequences to inequality, and in the case of extreme inequality these factors may be seriously damaging. Inequality may lead to a loss of opportunity as well as inequality of output. The ability to access justice, constitutional rights and indeed welfare services more generally can be seriously compromised by significant income inequalities.

There is, however, a level of dishonesty in debates around welfare. The assumption that the prime objective is to ‘reduce the gap’ or reduce inequalities is a political argument that misses the point about the essential purpose of welfare provision; that is, not to achieve equality but to ensure that poverty is defeated.

Poverty and moral responsibility

Poverty and moral responsibility are closely linked. Gertrude Himmelfarb’s argument is that since welfare and poverty were ‘de-moralised’, the responsibility for the resolution of the problem moved to society or the state. This issue of personal responsibility, its meaning, extent and consequences is essential to any coherent discussion of social welfare and the defeat of poverty.

Historically there was a very close correlation between local, voluntary provision, the exercise of judgement, and moral responsibility on behalf of both provider and recipient. The removal of notions of personal responsibility has been disastrous for an effective system of welfare. This is not just about ‘assessing the feckless’ – the issue of what to do with those who fall through the safety nets for any reason remains in a civilised society. The issue of personal responsibility goes much deeper and indeed wider. Thus Ruth Porter has commented: ‘We have stripped people of part of their dignity, forcing them to look first to the state before looking to those around them.’[20]

The move from a contributory to a means-tested approach was a further factor that encouraged dependency by reducing incentives either to work or to avoid welfare dependency. To avoid such undesirable consequences any effective welfare system:

requires participants to maintain necessary levels of personal diligence (i.e. work and saving) even though they know they will probably not benefit from them. It requires them not to exaggerate their level of need, even though they would probably benefit from doing so … In short, it requires sufficient and sustained virtues of diligence, honesty, and trust to nullify or overcome the free-rider problem.[21]

This encapsulates both the importance of personal responsibility and the levers within the present welfare system that push against it. Any debate on the future of welfare needs to engage with this inherent tension within the system. Indeed, for the critics of the market, that the market is flawed and subjected to greed, this is a salutary reminder that the welfare system suffers from the same problems.

Moral responsibility is both personal and communitarian. However, the acceptance of individual moral responsibility for work, for income and for welfare within families and communities is an essential starting point without which any form of state provision will become burdened by bureaucracy and failure.

The responsibility to work requires an understanding of work. For some, work is drudgery and wages are a reflection of subjection. In these circumstances the attraction of welfare will be significant. Deirdre McCloskey points out that work prevents poverty – ‘wages make people better off than the even more terrible alternatives.’[22] Indeed, she adds that the regulation of wages and excessively protective policies, by preserving old jobs and preventing the creation of new jobs, has the effect of preserving poverty.[23]

How then do we resolve the tensions between ‘protection’ (minimum wages), ‘subsidy’ (tax credits), personal responsibility and protection against poverty? There are, of course, a variety of answers that have been offered, but a move away from the rhetoric of inequality to one of relieving need and protecting the most vulnerable within a context of personal responsibility might at least allow for an honest debate.

Re-energising the market

How might the market be re-energised for the modern age in the quest against poverty?

Social entrepreneurship

Social entrepreneurship is not new. Indeed, the sector is not without its problems. Professor Alex Nicolls suggests that ‘social entrepreneurship is best understood as a multi-dimensional and dynamic construct moving across various intersection points between the public, private, and social sectors.’[24] So one consequence of this is a wide variety of organisational structures and funding models. However, the real opportunity comes from recognising that ‘what is new and most distinctive about social entrepreneurship is not the particular organizational forms that are used but the entrepreneur’s continual pursuit of greater social or environmental impact.’[25] The generation of social value, once accepted, generates its own questions of measurement and metrics. Indeed, the very meaning of ‘social’ is contested space.[26]

Social enterprises have become one of the new modes of business organisation for social purposes. The most effective social enterprises use a variety of means of capital, including venture capital and private equity. In addition there will be robust governance structures, highly skilled individuals, diverse partners and a clarity of social vision. In this way it is possible to harness significant funds to achieve social purposes through the application of business skill and commercial objectives. These enterprises will increasingly make use of commercial income streams and provide a return to investors. The larger the scale, the greater the opportunity for external finance. Smaller enterprises may also be very successful in local areas but carry the danger of an overdependence on grant finance and hence may display the characteristics of a traditional charity. The point is diversity, capital, scale and social objectives. Thus, ‘money and mission are intertwined like DNA in the social enterprise, yet they are not always equal partners.’[27] There are a variety of models, from the embedded model (the enterprise and social operations being interlinked) to the external (external profit-making enterprises service social programmes). The outcomes can be as dynamic in the contemporary market as they were historically.

Social impact investing

Social impact investing is effectively a new asset class in which investment funds are harnessed for capitalist return in investments with social objectives. This means of investing is a scaled-up version of the historic model, which was essentially small and local. Hence it enables larger-scale investment on a global scale for social objectives. So these funds take an enterprise approach to poverty alleviation by building commercially sustainable companies that create jobs and empower the poor to improve their livelihoods. They adopt the principles, discipline and accountability of venture capital investing but with a sub-venture capital rate of financial returns.[28]

The full story is told elsewhere, but one example is the Kuzuko Game Reserve in South Africa. Here, as well as the rehabilitation of land, conservation and eco-tourism, the game reserve provides employment, higher than average wages, proper contracts, training, participation in profits and investment in housing. So precisely like Lord Shaftesbury’s efforts, these ‘projects help the poor with both employment as well as capital building … either intellectual (through education and skills training) or asset (ownership of a taxi, a cow or share equity)’ and are ‘critical to poverty alleviation’.[29] They require investor confidence, expertise in both management and investment, long-term commitment and political stability. We should not underestimate the impact and the ability of such funds to harness capital for good on a global scale.

Corporate structures and objectives

The corporate social responsibility (CSR) reports of public companies seem, rather like audit reports, to get longer and longer in order to say less and less. That is not to argue that community involvement, philanthropy and social concern by companies large and small are other than good things. However, the traditional approaches to CSR emphasise the disconnection between a company’s core purposes and its ability to deliver wider social objectives. Section 172 of the Companies Act 2006 requires a director to promote the success of a company for the benefit of its members as a whole. This has given rise to the claim that directors must act to maximise shareholder value. Section 172 adds that directors must ‘have regard to’ various other matters including long-term decision-making, the interests of its stakeholders, ethical behaviour and the impact of its operations on the environment and community. It is doubtful whether section 172 requires shareholder value maximisation even without the sub-clauses. However, the use of ‘have regard to’ effectively lowers the priority given to the more inclusive vision.

This has led to other suggestions about how corporate structures can best serve wider social objectives. Business, social values and community do not necessarily stand in opposition to each other. The history of the Quaker businesses bears ample testimony to this.[30] The problem has occurred as ever greater distance has emerged between ownership and control. As Professor Colin Mayer has pointed out, the effect has been to weaken both governance and accountability.[31]

How, then, might the business community respond in terms of corporate structure? Two particular suggestions are worth noting in the space we have available. Colin Mayer advocates the ‘trust company’ in which a second board (the trustee board) exists to oversee and ensure the long-term stewardship of the company’s core values over time. This can be reinforced by differential voting rights for shareholders, such that those who have held investments in the company for more than ten years carry greater weight. Another recent approach has been that of the ‘B corp’ movement. A ‘C corp’ – in US law, but the point of principle remains – is a standard corporate structure in which the company has separate legal personality. A ‘B corp’ is a corporation that embodies specific social objectives into its articles of association or other constitutional documents. In the UK this involves adopting the general legal framework of section 172 of the Companies Act 2006 but specifically including societal and environmental benefits and a requirement that the interests of different stakeholders be treated equally.

Challenges and lessons

Poverty is scandalous. The causes of poverty are complex and that in itself means that diverse solutions are likely to be the most effective.

Poverty is a moral issue. The compartmentalisation of life into different strata – family, business, society – has essentially privatised morality. This is the conceptual reason why solutions to the problem of poverty have proved so elusive. It is essential to reverse this trend, but to do so will challenge vested and political interests. We must recover the ability to debate in the public square the morality of poverty, to exercise moral and public judgements – about responsibility, work, incentives and welfare.

A new social contract is needed that recognises that business, welfare and government are all needed to collaborate together in order to enhance the values that underpin society. The challenge to the Right is to recognise that those values are not merely individual but social. The challenge to the Left is to recognise that government cannot be the sole answer and may even hinder the achievement of our shared values, and that the market rather than being inimical to social welfare can play a central role. So here are a few final thoughts:

Work and enterprise are essential to defeating poverty

We cannot, and indeed should not, escape from the conclusion that work and enterprise lie at the heart of combating poverty. Incentives to work are central; as are incentives to avoid dependency on welfare. There are, of course, debates to be had about the quality and nature of work and employment. However, the over-emphasis on relative poverty and inequality devalues the central role of paid employment as the essential means of reducing poverty. In the same way, policies that encourage business and enterprise lie at the heart of any response to poverty.

The tax system should incentivise social objectives in the market

The government has a role to play but its size, complexity and cost mean that government cannot be solely relied on, and nor should it be. Social objectives in private-sector philanthropy and investment should be incentivised through the tax system. In the same way that the Enterprise Investment Scheme provides tax incentives to start-up companies, so similarly should investment in social enterprises and social venture capital also be encouraged. The removal of corporation tax from SMEs with social objectives (so that trading income streams are not taxed), VAT relief, together with investment and employment incentives could be transformational in encouraging social entrepreneurship.

The protection of the vulnerable is essential in a civilised society

None of this should take us away from the proposition that the protection of the vulnerable is a basic moral value in a civilised society. This will require a clarity of public moral intent, the harnessing of resources, the collaboration of faith and other communities and a willingness to debate the real issues.

New asset classes and ownership structures should be encouraged

The development of new asset classes for social venture capital, of new and diverse models of social entrepreneurship and of new corporate structures for commercial companies should be advanced and encouraged. The maximisation of shareholder value should perhaps be replaced by the idea of the maximisation of stakeholder values. In the same way that the introduction of limited liability enabled the broadening of ownership and the raising of equity capital, so we must be willing to enable and develop new structures for the modern age that give reality to long-term value and to social and environmental concerns.

In short, the issues of social welfare are so important that they cannot be left either to government, to the market, to the community or to the individual. However, we cannot continue with the current unsustainable models and the lack of proper debate. The moral debate must be restored to the centre of the stage, and that means a moral debate about poverty, its causes, work, welfare, incentives, personal and family responsibility and both the role and limits of government. After all, the future reduction or elimination of poverty depends on the clarity of the moral debate.

Notes to Chapter 1


[1] Quoted in Gertrude Himmelfarb, The Idea of Poverty: England in the Early Industrial Age, London and Boston: Faber & Faber, 1984, p. 3.

[2] R. H. Tawney, Religion and the Rise of Capitalism, New Brunswick, NJ and London: Transaction, 1998, p. 268.

[3] Richard Turnbull, Shaftesbury: The Great Reformer, Oxford: Lion Hudson, 2010, p. 197.

[4] Philip Booth and Ryan Bourne, Institute of Economic Affairs, ‘What the Market can Provide’, Institute of Economic Affairs, 2015.

[5] For the full story, see Turnbull, Shaftesbury.

[6] Gertrude Himmelfarb, Poverty and Compassion: The Moral Imagination of the Late Victorians, New York: Random House, 1991, p. 384.

[7] Himmelfarb, Poverty and Compassion, p. 384.

[8] See www.jrf.org.uk/sites/files/jrf/poverty-definitions.pdf.

[9] Richard Heinberg, The End of Growth: Adapting to Our New Economic Reality, Gabriola, BC, Canada: New Society Publishers, 2011, p. 2; emphasis in original.

[10] Wayne Grudem and Barry Asmus, The Poverty of Nations: A Sustainable Solution, Wheaton, IL: Crossway, 2013, p. 47.

[11] Angus Maddison, Maddison historical GDP data.

[12] European Environment Agency, ‘Continued Economic Growth? (GMT5)’, Copenhagen: European Environment Agency, 2015.

[13] Michael Novak, The Spirit of Democratic Capitalism, Lanham, MD: Madison Books, 1982, 1991, p. 13.

[14] Novak, Spirit of Democratic Capitalism, p. 14.

[15] United Nations, The Millennium Development Goals Report 2015, New York: United Nations, 2015.

[16] William J. Bernstein, A Splendid Exchange: How Trade Shaped the World, London: Atlantic Books, 2009, p. 384.

[17] Office for National Statistics, ‘Gini coefficients 1977–2012/13’ (equivalised disposable income).

[18] Jonathan Cribb, ‘Income Inequality in the UK’, London: Institute for Fiscal Studies, undated.

[19] HM Revenue and Customs, ‘Percentile Points from 1 to 99 for Total Income Before and After Tax’, 2012; updated March 2016.

[20] Ruth Porter, ‘The Case for Connection’, in Nick Spencer (ed.), The Future of Welfare: A Theos Collection, London: Theos, 2014, p. 26.

[21] Nick Spencer, ‘Welfare and Moral Community’, in Spencer (ed.), Future of Welfare, p. 114.

[22] Deirdre N. McCloskey, Bourgeois Dignity: Why Economics Can’t Explain the Modern World, Chicago, IL: University of Chicago Press, 2010, p. 424.

[23] McCloskey, Bourgeois Dignity, p. 425.

[24] McCloskey, Bourgeois Dignity, p. 425.

[25] Rowena Young, ‘For What It Is Worth: Social Value and the Future of Social Entrepreneurship’, in Alex Nicolls, Social Entrepreneurship: New Models of Sustainable Change, Oxford: Oxford University Press, 2006; repr. 2013, p. 59.

[26] Alex Nicholls and Albert Hyunbae Cho, ‘Social Entrepreneurship: The Structuration of a Field’, in Nicolls, Social Entrepreneurship, pp. 104–6.

[27] Sutia Kim Alter, ‘Social Enterprise Models and their Mission and Money Relationships’, in Nicholls, Social Entrepreneurship, p. 206.

[28] Brian Griffiths and Kim Tan, Fighting Poverty Through Enterprise: The Case for Social Venture Capital, Coventry: TBN, 2nd edn, 2009, p. 29.

[29] Griffiths and Tan, Fighting Poverty, p. 42.

[30] Richard Turnbull, Quaker Capitalism, Oxford: The Centre for Enterprise, Markets and Ethics, 2014.

[31] Colin Mayer, Firm Commitment: Why the Corporation is Failing Us and How to Restore Trust In It, Oxford: Oxford University Press, 2013, p. 153.

How to Make Finance Serve the Common Good

Making Capitalism Work for Everyone

Chapter 4: How to Make Finance Serve the Common Good

 

Today, insurance companies and pension funds manage more than 100 trillion dollars of savings. These flows are not directed to long-term investments in low-carbon infrastructure and other sustainable development projects, but are fuelling financial bubbles; shareholders who lack investment opportunities in the context of a deepening crisis of the real economy are collecting increasingly disproportionate dividends, becoming sources of economic instability and social inequality. It is important to find a strategy for training financial analysts, and more generally managers, to ensure that they are neither clones nor chameleons. This strategy needs to meet professional and deontological standards that are indispensable to the economy and finance, and must take into account the economic and societal changes to be made. There have been many dramatic events in financial markets since 2007. The subprime crisis was followed by successive bank failures and numerous scandals (Madoff, Kerviel, UBS, Offshore Leaks, China Leaks, Luxembourg Leaks etc.). More generally, collusion between public and private interests, as well as the public discredit of elites generated by different scandals worldwide, have underlined the necessity of looking at the type of training that needs to be promoted in order to fight against fraudulent practices that undermine social ties. Such training also needs to take into account today’s energy and ecological concerns.

 

The bankruptcy of Lehman Brothers

The bankruptcy of Lehman Brothers was declared on 15 September 2008, and was linked to the subprime crisis. The bank was facing important write-downs of its real estate investments and because it was unable to find a buyer, had to file for bankruptcy. It was an emblematic bankruptcy, which the US authorities wanted. But it was not alone. The implosion of the US financial system began with the near collapse of New Century Financial (April 2007). It led among other things to the buyout of Bear Stearns by J. P. Morgan, with support from the authorities (in March 2008), the refinancing of Fannie Mae and Freddie Mac (during the summer of 2008), the purchase of Merrill Lynch by the Bank of America (September 2008), the bankruptcies of the insurance giant AIG, followed by that of the Japanese insurer Yamato Life (October 2008), the Royal Bank of Scotland (end 2008), the restructuring of UBS and the bankruptcy of the Irish State in the wake of Irish bank nationalisations, and so on.

This failure of financial institutions had both systemic causes but also very often resulted from the accumulation of risks that were not correctly controlled. The banks piled up commitments and investments, notably in the form of derivative products and securitised loans, which are little-regulated, ‘sensitive’ financial instruments. As a result they were carrying ever greater risks that could not be sufficiently ‘reinsured’ in the markets, even if the overall characteristics of such products did not stop them obtaining satisfactory assessments by the credit-rating agencies. It may therefore legitimately be asked whether risk control by such institutions really did seek to manage real commitments, rather than merely checking in a formal manner that banks’ activities respected standardised procedures: for example, not buying stocks with at least a minimal rating.

 

The Kerviel scandal

In January 2008, news broke out in France that a trader in the banking, finance and investment division of the Société Générale had lost the bank €5 billion by speculating in stock markets. As with any trader negotiating futures contracts on stock indexes, Kerviel was operating under strict limits concerning his risk exposure, responsible to an ad hoc team whose function was to alert traders and their superiors about any breaching of limits. The aim was to ensure that positions taken were covered by symmetrical positions at the least, in order to return to risk levels permitted by the bank.

Several points may be noted. At the time, operating in the derivative markets was of strategic importance to Société Générale. People operating in these products had a not inconsiderable influence within the bank. By definition such traders are exposed: their transactions involve large sums that have little relationship to reality (Kerviel had mobilised around €50 billion in his positions). Such traders live in a virtual world. Their pay is linked to profits. They are also subject to social pressures: a bank’s networks, the atmosphere in the trading room, competition between market floors and even within a bank’s trading room. Their egos are very strongly expressed. As a result, management of such traders is very important. However, the turnover that can be observed among ‘heads’ of teams of traders, who may switch from one bank to another, may lead to carelessness. This raises the issue of governance for each bank.

Do all these financial actors actually master technically the sophisticated products they use? Has their human formation prepared them for such situations? Do the departments of control and management of financial risks within banks have the natural authority and technical competence to control traders’ activities? How are those persons who use sophisticated products trained? What are the criteria for recruiting and selecting supervisors and traders? What criteria are used in organising their professional development?

 

Ethics training in business schools and universities

It should be noted that the initial academic training of bank managers over 50 today, who are in positions of responsibility, did not include theoretical teaching of the most sophisticated market techniques used now, and implemented by teams that report to them. They have therefore to be surrounded by department or unit heads who are younger and correctly trained in banking and insurance. They must also ensure that their teams have sufficient cultural diversity.

It also needs to be noted that present training in finance, mathematics and econometrics involves very little questioning of the social effects of the techniques put into place. It is, however, legitimate to subject practices that have developed over the last 30 years to critical examination of their wider social role. Yet the references of our societies are clearly changing. The issue of compensation reflects the change in paradigm. Income spreads between top and bottom earners that used to be seen as indecent are now justified as compensation for specific talent, for mastery of business or simply as chance. But how is it possible to justify from any ethical point of view income spreads of 1 to 400, or even 1 to 1,000 and 2,000, spreads that are scarcely affected by taxation? For market-driven finance, these issues are aggravated by the complexity of instruments used and the speed with which financiers invent procedures to circumvent regulatory constraints, and hence raise their chances of rapid winnings. The examples concerning the pathologies of finance are quite clear. Since the work carried out in 2009 relating to abusive securitisation practices, and the destabilising role of over-the-counter markets, new practices have emerged, such as high-frequency trading, dark pools and shadow banking. These were all accepted by an EU MiFID (Markets in Financial Instruments) Directive of 2007, which reduces possibilities of controlling markets even more. For the person in the street, the concerned citizen who is not a specialist, all of this amounts to no more than a series of damaging inventions, and the discussion about the so-called benefits of these practices demonstrates very clearly their social harmfulness. The justification does indeed seem to be limited to greed and the unbounded search for personal wealth by some. Yet when it comes to criticising such financial innovations and simply banning them, the silence is deafening on the part of financial market experts, while politicians are very reticent in their declarations. From this point of view, the banning of naked credit default swaps (CDSs) by the European Parliament in the autumn of 2011 was a real, though isolated, step forward. And it was outdated, given the permanent inventiveness of operators. This raises the question of how to get experts, financial operators and politicians to enter into a dialogue. How can practitioners be trained to be incisively critical of the malfunctioning and pathologies of the system? The issue of how to regulate finance must be accompanied by a collective questioning of its basic soundness, and this has to be done in classrooms, within financial institutions themselves and in the public domain.

However, apart from training in finance, the whole direction of education in business professions needs to be re-examined. In general, actual training continues to be provided without systematically including any of the extra-financial concerns described in the previous proposals. A symptom of the gap between needs and dominant practices is the development in management schools of international associations (such as Net Impact or AIESEC), which seek to put strong emphasis on training in ethics and companies’ social responsibilities. Such training, which students who are members of these associations are calling for, is not simply an afterthought or marginal. Instead, it strives to design whole curricula from a social and ethical point of view.

Business ethics as it is taught in certain programmes is very insufficient and partial, for several reasons. First, such training tends to be optional, reflecting its marginal character. Thus there is every chance that it only gets through to the ‘converted’. Second, most theorists of business ethics are led to wanting to demonstrate the short- and long-term advantages of management that respects certain ethical practices, as well as the diverging interests of ‘stakeholders’. They draw on case studies of ethical behaviour, which show that companies have everything to gain from acting morally. Yet such an instrumental perspective is seriously limited. On the one hand, in the short term there seems to be no clear link between a company’s social and societal commitments and its financial performance.[1] Grounding the arguments for business ethics on its potential profitability is likely to lead only to limited mobilisation by companies and managers in favour of the unconditional respect of certain norms. It therefore seems necessary to present an applied ethics approach in companies from a different point of view. Different rationales and opposing, or even contradictory, interests exist in companies. An approach based on ethics involves highlighting these differences and seeking ways of moving to their resolution, subject to criteria that need to be specified, such as the social utility of an activity, the refusal to do harm and so on.[2]

The teaching of business ethics, as we have seen, is marginal in courses taken by students. To be sure, things have evolved a little. A recent attempt is based on getting all actors in a firm’s business activities to adopt a win–win perspective. The aim is to show how companies that target populations at the bottom of the social pyramid could increase both their market shares and be profitable, by allowing poor populations to have access to quality goods and services.[3] The ambiguities of such an approach are numerous and it is important to analyse case-by-case who really gains from a firm’s social innovations. The aim is not to deny the efforts of certain groups striving to make business activity more civic, but to stress the limits of these strategies. For example, when the quality of a product made by a multinational is not really superior to a local product, then to what extent is it legitimate for the multinational to penetrate the new market, if this leads to a weakening of small local producers? In many cases, students at business schools would benefit from extending their learning to the ethical and political issues linked to their practices. This is not done in most cases.

 

The limits of the predominant referral to ethics in businesses

A further important fact to stress is the recurring difficulty that training in business and finance faces, in dealing with ethics, in both business schools and companies. Ethics tends to be associated with the compliance by individuals or organisations with existing standards and regulations. In the first instance, this means promoting respect for rules, and indeed many problems could have been avoided in certain banks had traders not taken positions that exceeded their authority. However, personal or even collective integrity in respecting the law should not be identified with morality. Actions that are legal are not necessarily legitimate. Many business and engineering schools and universities have a tendency to let themselves be trapped by what could be called ‘the good student syndrome’: the habit of obeying the rules of the game in education and then in work.[4] This may lead to a successful but conformist career, with little scope for thinking critically, for identifying and challenging factors that generate inequality and exclusion or for commitment to fairer and more humanising practices.

The instrumentalisation of ethics is also strongly sustained in companies themselves in order to promote adherence by employees. There is a growing public questioning about the supposed virtues of companies’ business, tax and civic practices and so on. In response, companies are seeking to develop stronger ethics internally, based on charters and codes of ethics. However, most of the time such an ethics-through-charters approach focuses on individual behaviour and not on the behaviour of companies as social organisations. In other words, this approach limits discussion of practices within companies to the issue of individual behaviour, as though legitimate questions could not be raised about the consequences of companies’ behaviour as a whole. From this point of view it is important to recognise that explicit references to the Universal Declaration of Human Rights, the Principles of the ILO and the OECD Principles represents significant progress.

Furthermore, the proliferation of ethics charters leads to what very much looks like a partitioning of analysis. Charters have a tendency to refer all substantive issues an employee may consider as their responsibility to a third party, an expert within the company on this question: ‘above all, our company must respect the law, and for any tax issue that you may face, any questions which you may be asked by representatives of government, you should first refer to the tax department, and so on’. The same is true about issues relating to communication, the environment and any other sensitive questions, so that ultimately the ability of individual employees to think about problems and discuss them with others is limited. To deal with this, some companies do set up ethics committees that allow certain issues to be discussed, at the behest of employees. This is more about transmitting information and appealing for arbitration, rather than reflecting on issues collectively.

The partitioning of analysis is also driven by the growing specialisation of profiles. In the name of the continual need to acquire high-level skills, there is a strong tendency among human resource personnel – such as recruiting firms – to select employees who have the identical profile to their future superior, and who have identical training and experience to the requirements of the jobs offered. Such HR policies lead to a partitioning of professions, as well as a partitioning of individuals and their views about their work. In other words, no one has legitimacy when expressing views on work that does not relate exactly to the core of their own activity.

Thus a sales manager, whose job is exclusively to sell, has no legitimacy in commenting, for example, on the ethics of a firm’s advertising, because views about this are the sole responsibility of the marketing and communication manager. To be sure, organisational efficiency means that not everyone can be involved in everything. However, it is argued here that concern for ethics is probably one of the subjects that could and should stand more at the crossroads of different functions within the company.

This partitioning of analysis and thinking is maintained by recruitment, which generally focuses on technical competencies at the expense of the ability to think more generally, and a general culture, as shown for instance by the limited recruitment of graduates in humanities (sociology, philosophy etc.). Moreover, it is often difficult to move from one function to another within the company. For all these reasons, though ‘vertical’ ambition is accepted, mobility from profession to profession is de facto complicated. Yet if all accountants do not necessarily have the temperament to work in sales, nothing prevents some of them from having relational qualities that could allow them to carry out jobs not strictly limited to financial techniques.

A greater permeability of professions to outsiders, as well as to non-specialist training, would surely help in promoting company consideration and analysis of ethics. Therefore there should be generalised training in ethics in higher education. To foster a critical perspective among students and professionals in the business and financial worlds, in order to make progress towards equitable and sustainable practices, there should be:

– a generalised and compulsory course in moral and political philosophy in each curriculum;

– systematic incorporation of work on codes of good conduct and professional ethics in all programmes;

– mandatory blue-collar traineeships and immersion in a developing country in all educational tracks;

– support for continuing training of managers in ethics and alternative experiences (solidarity leave etc.).

It must be stressed that if the training of financial operators and analysts is better organised, including training in economics and social ethics, as well as internships in a company, then this will only be beneficial if clear professional ethics are adopted in institutions that recruit employees and manage their careers.

Finally, to move to a sustainable economy it is important to favour technical training relating to the energy and climate transition, within generalist or specialist teaching tracks in economics, management and finance.

 

The reasons for training in ethics

At present, training ethics is limited to a minimum: in France, students who prepare for entrance exams into grandes écoles in literature and business do indeed study some philosophy. However, this discipline is not taught subsequently, other than in exceptional cases (courses in ‘philosophy and commerce’ or ‘business ethics’ are usually optional and are only chosen by a small minority of students). Most other training courses, high-level technical training for engineers or education in universities do not include philosophy classes.

So what are the reasons for teaching ethics and politics? The behaviour described above in relation to recent scandals indicates that a rift separates the world of finance from the rest of society. At the same time, irresponsible individual behaviour is predominant, with insufficient control and little regard by professional practices for social questions in general. It is therefore important to promote the acquisition of a culture that allows the overall effects of the present form of capitalism to be analysed, that permits moral consideration, both individually and collectively, and that may then help shape criteria for action.

How should this training in ethics be undertaken? It could be argued that in response to the proposal of teaching moral and political philosophy systematically via courses, there is still the danger of formatting students according to the dominant libertarian view of the world. It is precisely this that makes it important to move beyond simply promoting codes of conduct relative to a particular discipline or professional activity, even if such an approach is important. The whole point of drawing on a philosophical approach is precisely to train students in the ability to reason critically, to recognise the presuppositions of any point of view, and to stand back and analyse any form of ‘turnkey’ evidence or argument – the doxa. The aim is to promote students’ freedom of thought and judgement, and to favour free and balanced intellectual choices. It is possible to put forward deeper study of the main thinkers in moral philosophy, including both classical (e.g. Plato, Aristotle, Aquinas, Kant) and contemporary thinkers (e.g. Weil, Ricoeur, Walzer,[5] Nussbaum[6]), along with philosophy that takes into consideration relations between human beings and the cosmos, as well as the consequences of human actions on ecosystems (e.g. John Baird Callicott, Hans Jonas, Simon Caney, Henry Shue). All of these ideas should be discussed specifically, as should the means of integrating the concerns of future generations into the policy-making process.[7] This list is obviously not exhaustive. Work by sociologists that looks at companies and the evolution of liberal societies could also be beneficial.[8] The idea is specifically not to give answers or put forward a single line of analysis, but to recognise that ethics can, and undoubtedly should, express itself in all human activity.[9] From this point of view, references to spiritual sources and different religious traditions are especially precious in supporting the ethical dimension of economic and financial activity. For example, the social thinking of the Catholic Church could lead to research into justice and the common good as the criteria for founding any entrepreneurial project.[10] For its part, Islamic banking provides material for examining criteria of justice relating to finance.

Is business ethics sufficient? We have seen how business ethics as taught in management programmes is limited in scope and is instrumental. To be sure, efforts to take into account different ‘stakeholders’ within a company, in order to offset the power granted to ‘shareholders’ (according to the economic theory of agency), does allow steps to be taken towards a form of economic activity that respects the just distribution of value added.[11] Similarly, recent calls by apologists of liberal management – such as Professor Michael Porter of Harvard Business School – for ‘shared value’ are significant in terms of the shift to more cooperative forms of governance and the distribution of profits.[12] However, it is important to go further, in order to look at the distribution of value throughout the production chain – value that is defined in economic, social, and environmental terms.

For these reasons, any analysis of ethics needs to be applied at a macro level and also at a micro, company level. It is important to look at the political weight of economic actors, and especially tax and accounting issues linked to the presence of multinationals in various legal environments (tax havens and other favourable areas). It is also important to set out ethical issues in all specialised curricula: for example, in the teaching of communication, advertising, negotiation and strategy as well as in training in finance, marketing, human resource management and management control. From this point of view the development of social entrepreneurship curricula and ‘alternative management’ teaching in business schools is a good thing. The aim here is to make such teaching available to all. It would be possible to have ‘company role-plays’, which are often provided to each new group of students in business schools as learning tools, that seek to identify other rationales for business than the dominant finance one.[13]

In engineering and advanced technical schools, the acquisition of theoretical tools for ethical considerations will directly affect both scientific and technical innovation as well as the economic and financial dimension of companies’ activities and their methods of management. These tools should be a priority. To accelerate the shift to a sustainable economy, it is also appropriate to favour generalist training as much as technical training with regard to the energy transition and climate change.

Theoretical consideration is vital, but it is improbable that it is enough to lead to clear awareness by students. If it is not accompanied by the integration of beliefs and values, how will it possibly lead to creating a desire to direct work and professional activity towards an economy that is embedded in society and in the cosmos, which are both clearly seen as meaningful? Students should be given experiences of situations that will help them view reality through different glasses and with different references from those they are used to. For this reason it is suggested here that students should undertake blue-collar training and immersion training in a developing country.

Finally, along with providing initial training to students in ethics and politics, the same interest should be shown in continuing education. Organisations and professional clubs already exist in which the extra-financial dimensions of business are stressed. Religious associations for managers could also be mentioned. Again, the question is how these places of analysis and discussion can contribute to debate in the public arena, thus favouring the formulation of standards and policies covering finance and the economy as a whole. In France, the Grenelle 2 Accords on the Environment marked the beginnings, albeit insufficient, of such an approach. At a global level, the Sustainable Development Goals (SDG), adopted in September 2015, express the willingness of the states to tackle development issues, together with the private sector and civil society. SDG 17 highlights the importance of redirecting private and public resources in order to promote long-term investments, particularly in developing countries.

As expressed by Pope Francis, the current economic and ecological crisis is first ethical and spiritual. Will we succeed in mobilising these ethical resources to promote an inclusive economy?

 

Notes to Chapter 4


[1] David Vogel, The Market for Virtue: The Potential and Limits of Corporate Social Responsibility, Washington, DC: Brookings Institution, 2005.

[2] Cécile Renouard, La Responsabilité éthique des multinationales, Paris: Presses Universitaires de France, 2007; ‘The Private Sector and the Fight Against Poverty’, Field Actions Science Reports, Special Issue 4, 2012, http://factsreports.revues.org/1573.

[3] Erik Simanis, ‘Reality Check at the Bottom of the Pyramid’, Harvard Business Review, June 2012.

[4] Cécile Renouard, Éthique et Entreprise, Ivry-sur-Seine: Editions de l’Atelier, 2015.

[5] Michaël Walzer, Spheres of Justice: A Defense of Pluralism and Equality, New York: Basic Books, 1983; Thick and Thin: Moral Argument at Home and Abroad, Notre Dame, IN: University of Notre Dame Press, 1994.

[6] Martha C. Nussbaum, Women and Human Development: The Capabilities Approach, Cambridge and New York: Cambridge University Press, 2000. This American philosopher has formulated the capabilities approach in connection with Amartya Sen and social science researchers. This is a criticism of development focused on GDP growth. It is based on a holistic and pluralist conception of human development and insists on the political conditions of such development.

[7] See in particular the work of Dominique Bourg and Kerry Whiteside.

[8] For example, Luc Boltanski and Eve Chiapello, The New Spirit of Capitalism, London and New York: Verso, 2005.

[9] Cécile Renouard, ‘Corporate Social Responsibility, Utilitarianism, and the Capabilities Approach’, Journal of Business Ethics 98:1, 2011, pp. 85–97.

[10] Benedict XVI, Caritas in Veritate, 2009; Pope Francis, Laudato si’, 2015.

[11] R. Edward Freeman and David L. Reed, ‘Stockholders and Stakeholders: A New Perspective on Corporate Governance’, California Management Review 25:3, 1983, pp. 88–106.

[12] Michael E. Porter and Mark R. Kramer, ‘Creating Shared Value’, Harvard Business Review, January 2011.

[13] For example, Cécile Renouard, Pierre-Louis Corteel, Grégory Flipo and Ludovic Rouvier, ‘Grameen Danone in Bangladesh: Building, Rebuilding and Sustaining the Social Business’, ESSEC Business Case, ESSEC Business School Publishing, April 2011.

 

Benefit Companies – A Pathway to the Future

Making Capitalism Work for Everyone

Chapter 3: Benefit Companies – A Pathway to the Future

 

The capital markets in the UK and many other countries are dominated by the doctrine of ‘shareholder primacy’. Under this concept, investors – including pension funds – seek to have each company in which they invest ‘maximise value’ by creating the greatest returns to shareholders. Unfortunately this narrow view of value can create great costs to society – what economists call ‘externalities’. Globally a tremendous amount of capital is subject to this system, encouraging the creation of systemic risks and costs. This phenomenon manifested itself in the recent financial crisis and is making it much more difficult to address climate change.

There is now a global movement to address this problem by passing ‘benefit company’ legislation. This corporate law reform gives companies the option to reject shareholder primacy and to be managed for the benefit of all stakeholders.

 

Problem identification illustrates the path to a solution

Business has become the most powerful force on the planet, and capitalism is the system under which we invest and steward business capital. The UK, to a substantial extent, invented the global system for allocating private capital. The community of institutional investors and their advisers wield as much power in allocating resources as any political system. Under shareholder primacy, this system of allocating financial capital ignores its effect on human and natural capital. Investors and businesses have not been asked to consider their effect on these essential elements of our economy. The investment and business community now have an opportunity to lead a reform of the principles that guide the investment channel, and to ensure that their beneficiaries’ assets are used to create a prosperous and resilient society for those beneficiaries.

Recent advances in industry, technology and finance have rescued hundreds of millions of human beings from poverty and created opportunities for broad prosperity and human fulfilment never before imaginable. But these advances are challenged by systemic threats that cannot be addressed without modifying the global investing chain. There is an urgent need to do so.

The investing chain channels hundreds of trillions of pounds of capital to businesses around the world. This capital is largely controlled by institutional owners, including mutual funds, pension funds, insurance companies, sovereign wealth funds, endowments and foundations. These asset owners rely on professional asset managers to direct this money into a variety of investments, including shares and bonds of public and private companies.

This chain is the circulatory system of the global economy, and serves vital functions:

1. It allows savings for the future – individuals can save to buy a home, retire and pass wealth on to the next generation.

2. It allocates savings to investments in manufacturing, intellectual property and technology, which drives growth and progress.

3. It should also provide stewardship through the governance rights of owners.

The companies at the bottom of the chain should work for the beneficiaries at the top of the chain – the workers, pensioners, insureds, students and others. In theory the allocation and stewardship performed by the institutions and managers in the middle should serve the savers’ interests. However, the system has become sclerotic, often working against the interests of those beneficiaries.

At the heart of our financial system there is a misalignment between the individual investor and society. What might be rational behaviour for an individual investor in his fiduciary context might be irrational behaviour for society. This misalignment arises from un-costed externalities. For example, executives recognise that there is no cost imposed on an individual company for emitting carbon. This creates an opportunity to increase returns by burning cheaper, dirtier fuel. While this may increase the individual company’s share price, increasing global temperatures increases risk to the portfolios of all diversified investors – including a worker whose savings are invested in that company through a pension fund. For savers, this externalisation of costs:

– increases the financial risks borne by a diversified portfolio;

– increases the risk that their lives will be disrupted by the effects of climate change.

Therefore the system works against the interests of the savers because it is focused on raising investment returns one company at a time, and thus encourages the externalisation of costs. Asset owners seek to maximise the value of each asset in their portfolio, and reward asset managers for doing so. Those managers expect companies to whom they direct capital to maximise the return on their shares, and support executive compensation packages that reward increasing share prices. As a result, corporate executives are encouraged to make decisions orientated towards maximising the return on their shares, even when those decisions add risk to the diversified portfolios of their owners and create instability in the world in which those owners live.

Two phrases encapsulate this paradox:

The first is ‘modern portfolio theory’, the investing paradigm that dominates portfolio management. MPT is a sound theory in many ways but its practical application has led institutional asset owners to focus on ‘alpha’ – returns that are higher than the return on a basket of similar assets – rather than on increasing (or at least not decreasing) the value of the basket.

The second principle – ‘shareholder primacy’ – posits that directors of companies must seek to deliver the best returns they can to their shareholders, without regard to the effect of their decisions on any other asset the shareholders might own or any other aspect of their lives.

MPT and shareholder primacy came to prominence in the latter half of the last century, the capstone being case law including the Revlon decision in Delaware (1985), and Harries v. The Church of England Commissioners in the UK (1992). Both had the effect of establishing that fiduciary duty governing trustees and directors was to maximise the financial interests of shareholders. This principle was codified in the 2006 Companies Act in the UK.

These principles lead to corporate behaviour that focuses on short-term share price and ignores the interests of critical stakeholders. In response there is a serious movement to require companies to act more sustainably. This movement, however, treats the symptom – irresponsible corporate behaviour – without addressing the root cause: the systemic focus on the financial performance of companies. Thus for the most part this movement to focus on corporate social responsibility (CSR) or environmental, social and governance concerns (ESG) is couched within the frame of shareholder primacy and MPT. A current focus of the ESG movement is that by acting responsibly, companies can avoid risks to their own reputations and improve their own long-term viability, and that asset managers can be stewards who encourage such long-term responsible strategies.

This is an important idea – there are many opportunities for companies to improve financial performance by treating the rest of the world decently and by taking a long-term view of their own business that incorporates environment and social factors. But ‘doing well by doing good’ is simply not enough. As long as asset owners and managers focus on improving the financial performance of individual companies, corporate executives will engage in less responsible strategies when available, and seek profit by imposing costs and risks on the rest of the market. And as long as asset managers are judged by their ‘alpha’, they will continue to be rewarded for finding the companies that beat the market by externalising costs and risks.

We must shift the focus of the investing chain to creating the real value, meaning that companies must be given the opportunity to act in the interests of all stakeholders rather than exclusively for shareholders.

The ESG movement has demonstrated that companies can act more responsibly, but authentic change in this area must be driven by asset owners. Only they have the power to create fundamental change, by requiring managers to focus on real value rather than naked financial gain. For fiduciaries, the ultimate beneficiaries of the capital they manage are entitled to have their assets used in a way that preserves their financial future and the future of society and the planet on which we live. The urgency of this task cannot be overstated: NGOs and governments simply do not have the resources to continue to repair the damage being done by an investing chain that encourages irresponsible and unsustainable capital deployment.

 

Benefit company: introducing stakeholder values into the investment chain

At the company level there is an emerging global alternative to shareholder primacy, known as the benefit company. This creates stakeholder-based corporate governance by requiring directors to pursue positive-sum opportunities. The model has three mandatory elements: a broadened purpose, director accountability and stakeholder transparency. Companies can opt in with a simple amendment to their articles. The statute requires that directors of benefit companies balance the interests of stakeholders with those of shareholders. It has now been adopted in 32 US jurisdictions (including Delaware), as well as Italy, and is being considered in other states and countries. Should current momentum be maintained, this legislation will de facto become the new global legal standard for businesses that are seeking to work for everyone.

Shareholders retain their rights – only they can enforce this obligation. Rather than undermining their rights, introducing director accountability for stakeholder interests gives shareholders and management a tool with which to engage cooperatively to address critical systemic issues without the obstacle of the ‘shareholder primacy’ mandate. Moreover, adopting benefit company governance helps a company to build more value for its own shareholders by allowing the company to make authentic commitments to its employees, customers and communities.

The legislation creates a voluntary regime. Business should not be forced to change. Stakeholder governance is rational and must demonstrate its superiority to shareholder primacy in a market environment.

The existing system is weighted against a stakeholder approach. Benefit company legislation simply offers stakeholder governance an equal opportunity. Culture and practice around shareholder primacy is a bar to investors using financial capital to build and preserve human and natural capital. The legal and accountancy professions are rooted in the orthodoxy of shareholder primacy. Understanding of the emerging alternative is sketchy and rudimentary at best. It is routinely seen as an improper route to pursue in light of modern understanding of ‘fiduciary duty’.

The UK has the opportunity to create market infrastructure to enable companies to pursue this alternative path – should they wish to do so. By doing so, the UK can take leadership in the urgently needed evolution of capitalism – just as it did in centuries gone by when it to a large degree created a global trading economy.

 

Key elements of benefit company legislation

Providing for benefit company governance clearly creates and illuminates two alternative pathways for business: the default shareholder route or the emerging stakeholder route. Without establishing this in the statute, shareholder primacy will remain as the only clear pathway for business, because the adoption of stakeholder governance without a statutory structure creates risk and uncertainty.

Under current law, companies can already change their charters to pursue impact, but the efficacy of such provisions is limited without a statutory structure. Benefit company legislation would create a simple turnkey solution for companies wanting to pursue and lock in commitment to stakeholders.

The protections built into the legislation allow companies to confidently adopt stakeholder governance without creating uncertainty or the risk of excessive litigation. By giving companies the confidence to pursue the interests of society and the environment, benefit company legislation reduces incentives to externalise costs, and consequently reduces the need for regulation. No company would be obliged to choose this legal form. The legislation would be an important tool for mainstream businesses pursuing commitment to stakeholders. And the reporting requirements ensure that a company reports annually on its stakeholder performance in addition to its financial performance.

 

Certified B Corporations: lighting the path towards a capitalism that works for everyone

Certified B Corporations are companies that have adopted the legal framework of the benefit company or a similar stakeholder-based governance model, and achieve a high level of performance for all stakeholders, as measured by the B Impact Assessment.

Certified B Corporations launched in 2007 in the USA, where arguably the problems associated with capitalism’s failure to work for everyone are most acute. However, because the problem of an overly narrow focus for business is a global one, the idea has attracted interest from business leaders all over the world. There are now 2,000 B Corporations in 50 countries, working in 130 industries. They include some of the world’s leading growth businesses, such as Etsy, Kickstarter, The Honest Company, Hootsuite and Warby Parker, as well as established brands such as Patagonia and Ben & Jerry’s, and industry leaders such as Laureate Education (one of the world’s largest providers of higher education), Roshan (Afghanistan’s largest mobile phone company) and Natura (Brazil’s largest cosmetics company).

In September 2015 the movement launched in the UK, where there are now over a hundred B Corporations, including leading growth businesses such as Ella’s Kitchen, Generation Investment Management, COOK, JoJo Maman Bébé, Escape the City and Ingeus.

Growth all across the world is accelerating as awareness of this alternative path for business grows, and as these B Corporations develop an evidence base that this path is value-creative for shareholders as well as for society.

 

The costs of moving to a stakeholder economy

Moving from shareholder values to stakeholder values will incur two types of costs: transitional costs and ‘trade-off’ costs. The former are the types of friction that would be expected with any significant public policy shift: the costs of creating new standards, of educating system participants and of implementation. These are hard to estimate but probably not large in comparison to the amount of capital currently allocated and the inefficiencies it seeks to address.

The trade-off costs are trickier but critical to the success of the stakeholder value movement. It is always tempting to argue that there are no trade-offs. This argument posits that because sustainable and responsible operations are inherently efficient and reputation-enhancing, they will always create long-term value for any firm. While it is often the case that responsible corporate behaviour does create long-term shareholder value, there will always be opportunities to create shareholder value irresponsibly. There are some important sustainability practices that just will not drop to a corporation’s financial bottom line. The distinction between sustainability practices that are financially material and those that are not were discussed in a recent piece on shareholder activism from Professor George Serafeim at Harvard Business School.[1]

Thus some individual companies may miss opportunities to create more profit, and this can certainly be a significant non-recoverable ‘cost’ from the individual company perspective. From a societal perspective, however, these foregone opportunities are negative sum, and the ultimate reason for encouraging a shift to stakeholder values in the capital markets is to create conditions in which we are applying our financial capital to positive-sum opportunities.

So the real challenge to implementing this shift will be avoiding the ‘tragedy of the commons’ that will always tempt both corporate and asset managers. Compensation will play a role, as will public perceptions and shareholder action at the level of ultimate beneficiaries.

 

The supply side

As a demand-side intervention, the benefit company creates a clear path for businesses and shareholders that wish to make their business work for everyone to follow. It is important to note that a range of complex supply-side interventions are required to provide the basis of a shift to enable capitalism to work for everyone. Many others, such as the Purposeful Company work of Big Innovation Centre in the UK, are seeking to illuminate how best to tackle the suite of interconnected issues that need to be resolved at both the investor level and in the real economy. While the benefit company can be a key lever to effect change at both levels, tackling the disconnection between the financial markets and the real economy will require a range of separate interventions.

 

Reasons to be hopeful

The growth in the number of businesses choosing to adopt the benefit company form is accelerating rapidly – in the USA there are now close to 4,500 benefit entities. More and more multinational companies are seeking to understand how they might adopt such purposes. In addition to this, over 50,000 companies worldwide are using the B Impact Assessment, the social and environmental performance management tool that offers one way for companies that adopt the benefit company status to fulfil their reporting requirements. Adoption of the legal form, and use of the B Impact Assessment, are both now experiencing exponential growth.

It is becoming increasingly clear to business leaders, governments and civil society that the current narrow role that business has been given is inadequate. Business can do more. There is growing consensus around the opportunity to address the design constraints of our current system of shareholder capitalism – to enable it to evolve into its more socially valuable and sustainable successor, stakeholder capitalism.

 

Notes to Chapter 3


[1] Jyothika Grewal, George Serafeim and Aaron S. Yoon, ‘Shareholder Activism on Sustainability Issues’, Harvard Business School Working Paper Number 17-003, 6 July 2016, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2805512.

 

Purpose, Practice and Partnership: A Christian Reflection

Making Capitalism Work for Everyone

Chapter 2: Purpose, Practice and Partnership: A Christian Reflection

 

With apologies to Winston Churchill, it might be said that ‘Capitalism is the worst form of an economic system, except for all the others.’ Or putting it more positively, it seems beyond dispute that capitalism is the most efficient economic system for aligning the means of production with the desires of consumers (measured on a one-dollar-one-vote basis), but that this outcome is only one aspect of human flourishing.

The trouble comes when we forget this caveat. Often our idolatry of the free market leads us to conflate an efficient allocation system with an optimal overall societal outcome. Dazzled by the market’s many positive and amazing features, we quickly go blind to competing values. In the midst of our ecstatic worship of all the good that the market has done it becomes too easy to ignore the human and environmental damage it has inflicted along the way.

Indeed, it is the very success of the market that tempts us to idolatry. An increased reliance on market economics has led to rising standards of living in most places around the globe. Extreme poverty has been radically reduced. The world attained the first Millennium Development Goal target – to cut the 1990 poverty rate in half by 2015 – five years ahead of schedule largely through the introduction of market-based economies in Asia.[1] Reductions in the poverty rate continue in all regions. Huge gains have been made in reducing infant mortality and extending life spans. The number of neonatal deaths around the globe declined from 5.1 million in 1990 to 2.7 million in 2015.[2] Market forces have spurred on substantial growth in food production, in most cases sufficient to accommodate huge growth in the overall world population.

In addition there is credible evidence to support the assertion that respect for the ‘rule of law’ goes up as businesses operating in a capitalist environment are established.[3] The market has accomplished much good.

Yet it has also done much harm. It can fairly be held responsible for multiple instances of environmental degradation and cultural commodification. It has nurtured a temptation towards greed and created a corporate environment in which leaders are confronted with enormous temptations to ‘cross the line’ in pursuit of profits. In many cases it has turned a blind eye to slavery, forced labour and sex trafficking. Moreover it has aggravated the gap between the rich and the poor. According to Oxfam, from 1980 through 2012 the percentage of income held by the richest 1 per cent in the USA has grown nearly 150 per cent. That small elite has received 95 per cent of wealth created since 2009, after the financial crisis, while the bottom 90 per cent of Americans have become poorer.[4]

For at least the last 15 years, the School of Business and Economics (now the School of Business, Government and Economics) at Seattle Pacific University has been wrestling with questions of business and economics from a Christian perspective. Generally, the focus of these discussions has been from the perspective of the business leader; that is, what advice would the School offer a Christian in business who seeks to align his or her behaviour with God’s plans for the world? Under the broad heading of a ‘theology of business’, the School has been considering macro-level questions such as ‘How might God think about the appropriate purpose of business?’; ‘How might God want business as one institution in society to interact with other institutions?’; ‘How might God think about the free market system?’

Our conclusion is that business leaders need to attend to questions of purpose, practice and partnership. In so doing they can participate in God’s work in the world and help make capitalism work for everyone.

 

Purpose

In 2014, Miguel Padró, Senior Program Manager of the Business & Society Program for the Aspen Institute, released a paper entitled ‘Unrealized Potential: Misconceptions about Corporate Purpose and New Opportunities for Business Education’, which emerged from a series of Business & Society Program roundtables, meetings and private conversations with more than one hundred law and business scholars, corporate leaders and investors over the preceding three years. He wrote as follows:

While corporations are arguably the world’s most influential institutions, this influence is accompanied by deep public scepticism about the nature of the corporation, the motivations of its leadership, and its ability to advance the public good …

Such findings are sobering given the potential for our largest corporations to help solve the great challenges of our day, from developing and scaling clean energy to curing disease. Throughout history, the corporate form has been used for constructive and remarkably diverse purposes … However, an equally powerful narrative of the corporation views it as an engine of income inequality and a threat to the sustainability of our natural environment and the civic institutions charged with protecting society’s interests. Both of these narratives hold a fair share of truth and are deeply rooted in historical experience. And yet both assessments are incomplete on their own.

Conventional wisdom unnecessarily constrains thinking about the role of corporations in the long-term health of society …

The dominant conception today is that corporations exist to maximize value for shareholders. Unfortunately, a particularly narrow understanding of this paradigm leaves many MBAs believing that they are legally and morally obligated to maximize stock price for their investors. Over three years of dialogue among and with scholars, business practitioners, and investors, we have observed deep concern that such a view is not only untrue as a matter of law, but unwise as a practical business matter. Unfortunately, the narrow paradigm persists strongly throughout business education and surprisingly little new thinking about corporate purpose has emerged from the business academy for some time.[5]

Against this backdrop, an alternative understanding of business purpose is desperately needed if we are to make capitalism work for more than just investors. Indeed, I would argue that the good corporations can accomplish in our world will be substantially enhanced if the dominant paradigm is turned upside down.

At this point, most corporations would affirm the importance of offering employees opportunities to engage in meaningful and creative work and of developing products and services that will enable their communities to flourish. These ‘goals’, however, are really understood as strategies designed to help achieve the higher end of maximising returns on shareholder investment. Providing good jobs reduces turnover and keeps expenses down. Providing good products builds brand loyalty and increases sales. In each case, these strategies serve the higher purpose of greater profitability.

However, in the light of the biblical narrative, this model is indeed upside down. Instead of adopting maximising return on investment (ROI) as the ultimate corporate purpose, we concluded that businesses’ ultimate purpose would be better understood in terms of the following two goals:

1. Business exists to provide opportunities for individuals to express aspects of their identities in creative and meaningful work.

2. Business exists to provide goods and services that will enable the community to flourish.

I would argue that these are the proper first-order purposes of a business. Good profits – or ROI – is not the ultimate end of a business, rather it is the means of attracting the capital that the business needs in order to allow it to pursue its legitimate first-order purposes. Stated succinctly, profit is the means rather than the end of business operations.

Consider this metaphor: imagine that profit is like blood in our bodies. If you do not have blood circulating in your body we do not need to have a long discussion as to your purpose in life. You’re dead. Similarly if profit is not circulating in a business we don’t need to consider its purpose in society. It’s bankrupt. But which of us gets up in the morning and decides to dedicate our day to the ultimate purpose of pumping blood? No. Blood is critically important but it’s not the purpose of our lives. And the same is true of profit in business.[6]

The blood metaphor does highlight one other critical characteristic of profit, however. In addition to serving as a means to a higher end, it also operates as a constraint. When a business leader sets out to achieve the twin goals of good jobs and good products, he or she cannot choose from any option that might advance these ends. Rather he or she must limit the options under consideration to those that can be pursued profitably. And in many contexts, this can be very limiting indeed.

Still under this proposed upside-down paradigm, the question to be pursued when making a strategic business decision is fundamentally different. Instead of asking which of the available options will most likely maximise ROI, the first question should be ‘Which option can I pursue that will go the farthest towards creating opportunities for meaningful and creative work and providing the products and services most likely to enable my community to flourish?’ These are fundamentally different questions and over time they will lead in different directions.

 

Practice

To understand a game one needs to have a clear understanding of both the object of the game (i.e. what it takes to win) and the rules (the limits of what you can do as you pursue the object). In the same fashion, reflecting on the discipline of business from a biblical perspective, if we are to understand God’s design we will need a clear understanding of both the object – the purpose of the work – and an understanding of the ‘rules’ that a business leader should respect even as he or she pursues the purpose.

Put differently, the question is one of limits and boundary conditions. What limits should a business respect as it pursues the twin first-order purposes of good jobs and good products/services?

Just as there currently is a dominant understanding of business purpose – that is, maximising returns on shareholders’ investments – there is also a conventional understanding of business limits. Put simply, under at least one school of thought, a business leader has a fiduciary duty to do everything possible to optimise ROI so long as it does not involve breaking the law.

But does that mean it’s all right for CEOs to maximise profits by following perfectly legal business practices that cross the line into unethical waters? Some business executives would say ‘yes’. Their stance is that a CEO’s main responsibility is to maximise profits and shareholder value within legal parameters – even if that means having low ethical standards:

… just because a decision may be viewed as ruthless, doesn’t mean it’s the wrong choice for the long-term viability of the organization. When it comes to the game of business, my rule is to know the rules and then play the game at the very edge.[7]

A competing view requires that business decisions be limited by both legal and ethical constraints. But even here, the understanding of ethics is often impoverished. For some, the two are conflated. For example, ‘”If it’s legal, it’s ethical” is a frequently heard slogan.’[8] For others, ethics may go beyond the law – but not too far. The patron saint of the ‘maximise ROI’ understanding of purpose, Dr Milton Friedman, explains the limitation this way in his seminal article, ‘The Social Responsibility of a Business is to Increase its Profits’:

The responsibility is to conduct the business … to make as much money as possible while conforming to the basic rules of society, both those embodied in law and those embodied in ethical custom.[9]

While this seems to open the door to some restraints beyond just legal requirements, the balance of Friedman’s article reveals how narrow this ‘expansion’ really is:

There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.[10]

In short, for many, the dominant view holds that business choices are limited to law with perhaps a dash of ethics thrown in. From a Christian perspective, however, this is unsatisfactory. Christians are to aspire to be like God ‘in true righteousness and holiness’ (Ephesians 4.24), and while compliance with laws may, in most instances, serve as a floor for righteous behaviour it is certainly not the ceiling. So beyond mere compliance with laws, what additional ethical limits or boundary conditions should a business respect?

Of course, there are a number of sources for authority that one might refer to in answering this question. Biblically, however, I would suggest that there are two overarching principles that together capture God’s higher standards for ethical limits. Both are derived from the biblical Creation account. As originally designed by God, human beings were made in the image of God (Genesis 1.27) and were called to function as God’s stewards who would guard or take care of their environment (Genesis 2.15). Consequently, Christians in business have a duty to respect each individual as God’s image bearer and a duty to operate their businesses in a sustainable fashion.

A duty to respect each individual’s dignity in business dealings is relatively easy to understand, albeit sometimes difficult to put into practice. It involves encounters with individuals in every dimension of the business, such as customers, employees, colleagues and vendors. It implicates, among others, issues of integrity, privacy, freedom of expression, sexual harassment, racism, sexism, fair working conditions and reasonable pay. In each case the question to be asked is whether a contemplated business decision will honour the image of God in each individual who will be impacted by the decision.

Sustainability takes a little more explanation. Although this isn’t perfect (for example, it doesn’t work particularly well for businesses in extractive industries), ‘sustainability’ might be assessed by asking the following question: ‘If nothing changed in the external surroundings of a business, could it continue to practise business in this way for ever or, alternatively, is it using something up such that when it is gone, the business will have to change?’

In the USA, references to ‘sustainability’ are typically understood in terms of the natural environment, and certainly this is included. However, the concept has applicability across all dimensions of the business. Will the practice in question be sustainable in reference to shareholders? Employees? Vendors? Customers? And so on. For each of these stakeholders, principles of sustainability can be developed. For example, this is why a business must pay a risk-adjusted rate of return on invested shareholder’s capital – not because doing so is the purpose of the business but because to do otherwise would be unsustainable. The business would burn through the invested capital with no opportunity to replenish.

Similarly, with respect to employees the principle of sustainability suggests that Christians should be at the leading edge of the ‘living-wage’ movement in the USA. For a business to use up the entire productive capacity of an individual but to fail to pay him or her an amount sufficient to survive on is fundamentally not sustainable. Comparable principles could be developed for the other categories of stakeholders.

The first-order purpose of business is to serve in two key dimensions: by providing goods and services that will enable the community to flourish and by providing opportunities for individuals to express aspects of their identities in meaningful and creative work. As businesses pursue these goals, however, they must select from the universe of possible choices only those that can be pursued in a manner that respects the dignity of each individual involved and is sustainable across all dimensions of the business.

 

Partnership

The institution of business was never intended to function in a vacuum. In God’s design, business was intended to work in partnership with other institutions to enhance ‘the common good’. Business and other institutions were to be allies working for a common purpose rather than adversaries pursuing competing interests. While this applies to many different institutions, the relationship between business and government deserves special attention.

Notwithstanding a handful of public–private initiatives, most people in business and government experience the relationship between these institutions in adversarial terms. Government often approaches business as a wild animal that desperately needs to be controlled. To tame the beast it passes more and more laws and regulates business activities more and more closely. In its preoccupation with avoiding harm it frequently tramples on the important work of businesses as wealth creators. At its worst, it can substitute the judgement of politically motivated decision-makers in situations where attending to market signals would yield decisions more likely to nurture human flourishing.

At the same time, however, business frequently disrespects the role of government. Government involvement is characterised as a costly nuisance and distortion. Government bureaucracies are mocked as cesspools of inefficiency and its intrusions into the marketplace are to be resisted, subverted and avoided if at all possible.

Of course, neither of these positions honours the God-given purpose for government and for business. Neither was intended to function alone. Each needs the other. Government needs business. By itself it can never improve the overall financial health of its constituents. It needs business to create wealth and provide jobs. Moreover, government funds its operations from tax revenues – revenues only produced directly or indirectly by businesses.

However, business desperately needs government if it is to function in a manner that enhances the common good. In some ways this is obvious. Business needs laws and courts to enforce contracts. Businesses need police and firefighters to protect their facilities. They depend on government to provide the physical infrastructure, such as roads, needed to facilitate commerce, and to fund the basic research that is often the wellspring of new innovation but too risky and costly for any one business to undertake.

Business also needs government to help ensure that the market functions appropriately. It is the government that enforces antitrust laws to prevent monopoly power from distorting the market. Government regulations capture externalities that individual businesses have incentives to avoid but which, once captured, allow the market to function more accurately. Governments require businesses to provide information that allows customers and investors to make better market decisions.

Government can help level the playing field between businesses by ensuring that they abide by a common set of ground rules. In some ways, the more ethical the business, the greater its appreciation for government regulation that forces its less ethical competitors to operate within a comparable cost structure.

When Alan Greenspan was questioned in the wake of the subprime mortgage meltdown about his previous opposition to government regulation of the financial industry, he noted: ‘I made a mistake in presuming that the self-interest of organisations, specifically banks, is such that they were best capable of protecting shareholders and equity in the firms.’[11] It seems that government regulation is necessary, at times, just to preserve the health of the business.

Society’s common good requires that goods and resources be fairly distributed. Fair distribution invokes two values that coexist in tension: distributing goods in respect of merit; and distributing goods equally. Merit-based distributions reward individuals for their ingenuity. They provide incentives for risk-taking and hard work. By and large, the market is a merit-based distribution mechanism. Government, by contrast, tends to function within a framework of equality.

Both are needed. Business creates wealth but, left to its own devices, will tend to distribute the wealth unevenly. Much of the growing income inequality that exists in our world today can be traced to this phenomenon. Government, on the other hand, does not create wealth but facilitates its redistribution in a way that is designed to enhance equality. It does so through a variety of mechanisms including enforcement of labour laws, setting a minimum wage and enacting progressive taxation structures. Society flourishes best when there is a healthy balance between merit-based and equality-based distributions, and neither government nor business acting alone can achieve this balance.

So what might this mean for a Christian in business?

In general the business person should interact with government as an ally in pursuit of the common goal of human flourishing rather than as an adversary. This change in perspective alone will open up significant opportunities for partnership.

Business leaders should resist evaluating government in reference to business metrics. Efficiency is a central value of business. The capacity to produce more with less directly contributes to the business goal of wealth creation – providing goods and services that will enable the community to flourish. And, of course, there is no inherent value in an inefficient government. But government operates on a different ethic. Its goals and purposes are advanced through a political process of broad inclusion and compromise. These processes are inherently inefficient and yet central to government’s vocation. It undercuts government’s purpose when its output is critiqued against business standards.

In some cases, Christians in business should support the enactment of regulations that would require all competitors to comply with a certain set of ethical standards. For the Christian in business who would be complying with these ethical standards in any event, regulation may help level the playing field. Of course, the desire to level the playing field must be weighed against the inevitable transaction costs of enforcement, reporting and monitoring compliance with new regulations, the reality that all regulations are inherently both over- and under-inclusive, and the risk of unintended consequences. It also must take into account the very real possibility that in the context of globalisation, a competitor may simply move to another jurisdiction.

Christians in business should avoid using government to secure a competitive advantage in the marketplace. In his book Supercapitalism, Robert Reich describes a number of ways businesses have leveraged their political contributions to secure regulations that afford them an advantage over others in their industry.[12] In effect, these are cases where regulations are not being used to level the playing field but rather to tilt it in favour of the politically well-connected. This thwarts government’s purpose of looking out for the welfare of all and undermines its capacity to partner for the common good.

Business leaders operating within a regulatory structure will occasionally find gaps in the legal scaffolding. Conventional wisdom suggests that these are opportunities to be taken advantage of. But where the gap is clearly unintended or, as is sometimes the case in developing world countries, a function of a weak government, the business should work to strengthen the underlying regulatory scheme rather than take advantage of it in a way that would undermine the government’s intentions.

In short, business needs government and government needs business. And society needs both of them to function as allies if they are to pursue the common good.

 

Conclusion

If business is to seek the common good – indeed if it is to work for everyone – it must redirect its efforts away from a narrow focus on maximising ROI towards business choices that will seek to profitably create meaningful jobs and good products. It must conduct its operations in ways that respect the fundamental dignity of each individual it touches and are sustainable across all of its stakeholders. And it must be willing to partner with government and other institutions in society, recognising that the common good depends on a set of institutions, serving different but complementary goals, working in tandem.

 

Notes to Chapter 2


[1] United Nations, ‘The Millennium Development Goals Report 2012’, New York: United Nations, 2012, p. 7.

[2] ‘Children: Reducing Mortality – Fact Sheet’, World Health Organization, last modified September 2016; www.who.int/mediacentre/factsheets/fs178/en.

[3] Ann Bernstein, The Case for Business in Developing Economies, Johannesburg: Penguin Global, 2010, pp. 190–209.

[4] Ricardo Fuentes-Nieva and Nick Galasso, ‘Working for the Few, Political Capture and Economic Inequality’, Oxfam International; www.oxfam.org/sites/www.oxfam.org/files/bp-working-for-few-political-capture-economic-inequality-200114-summ-en.pdf.

[5] Miguel Padró, ‘Unrealized Potential: Misconceptions About Corporate Purpose and New Opportunities for Business Education’, working paper of the Aspen Institute Business & Society Program, 2014, pp. 2–3.

[6] Don Flow, interview by Al Erisman, Ethix, 1 April 2004; http://ethix.org/2004/04/01/ethics-at-flow-automotive.

[7] Raquel Baldelomar, ‘Where is the Line between Ethical and Legal?’, Forbes, 21 July 2016, emphasis added; www.forbes.com/sites/raquelbaldelomar/2016/07/21/where-is-the-line-between-what-is-ethical-and-legal/.

[8] Lynn S. Paine, ‘Managing for Organizational Integrity’, Harvard Business Review, March–April 1994, p. 106.

[9] Milton Friedman, ‘The Social Responsibility of Business is to Increase Its Profits’, The New York Times Magazine, September 1970, pp. 122–6, at p. 122.

[10] Friedman, ‘Social Responsibility’, p. 126.

[11] Alan Beattie and James Politi, ‘”I made a mistake,” admits Greenspan’, Financial Times, 23 October 2008; www.ft.com/content/aee9e3a2-a11f-11dd-82fd-000077b07658.

[12] Robert B. Reich, Supercapitalism: The Transformation of Business, Democracy and Everyday Life, New York: Vintage Books, 2007, pp. 131–67.