We are in the middle of the greatest economic catastrophe for generations. As with previous crises, it is the poor, those without buffers to weather the storm, who will fare worst – losing jobs and homes. In our inter-connected world, citizens of low-income countries suffer as demand falls for the goods they produce, protectionism rises, and finance flows that pay for basics such as water and medicines shrink. All this as the effects of climate change become ever more present.
As in the 1930s, this global crisis has been caused by
deregulated financial markets lending excessive amounts of credit at high rates of interest.
From the 1970s, policy-makers were seduced by the argument that private bankers could be trusted to create and distribute credit almost without limit, and fuel economic growth and easy profits. So they lightened regulation on financiers, devolving to them the power to set the price of credit – interest rates.
The result was a tottering pile of unpayable debt that
productive activity could not support. When rising real rates of interest made the cost and burden of the debt unpayable, the bubble burst.
A failure of ethics
“We have always known that heedless self-interest was bad morals; we know now that it is bad economics.” — Franklin D Roosevelt
Since the 1970s, there has been a deliberate failure to recognise economics’ true status as a sub-system both of the eco-system (which imposes natural, physical limits on available resources and on the capacity to cope with waste through environmental sinks), and of humanity’s moral framework (commonly-held ideas of justice, fairness and harmony; a sense of right and wrong).
In driving the money-changers (money-lenders) from the temple, Christ asserted clearly that moral and spiritual considerations prevail over monetary ones.
The finance sector has, since the time of John Calvin (1509–64), successfully manipulated, evaded and discredited Christian moral and ethical standards – in particular the concept of usury – that placed limits on the capital gains made by money-lenders. The growing, secretive power of finance, not surprisingly, has required an increased deference to, and worship of the god of money. With finance turned into the master of the global economy over the past 30 years, there have been historically unprecedented rates of usury. Western
Christianity’s failure to address the sin of usury contrasts with Islam’s success in discrediting it.
And finance sector proponents did not stop at weakening religious ethics. They have successfully marginalised academics and intellectuals who questioned the dominance of finance. Until very recently there was virtually no university department or journal of economics left that challenged “high finance”. It was not even a subject of economic discourse.
Rebuilding ethical and economic architecture
My book, The coming First World debt crisis, published at the end of 2006 before the credit crunch unfolded, made the case that Western societies have to revive moral standards and set clear ethical benchmarks by which to regulate credit and debt, and rein in the finance sector.
The flimsy international financial system created in the early 1970s and consolidated thereafter has, on a grand scale, made the rich richer and the poor poorer. While it can be argued that its responsible or ethical use has facilitated much worthy economic activity, it has been too easily and frequently abused, with wealth from the poorest countries being sucked up and transferred to the richest through various mechanisms including debt repayments, repatriation of profits and capital flight, rather than being spent domestically to reduce poverty.
We need a thoughtful re-design of the international financial system to ensure greater stability and fairness. John Maynard Keynes proposed an International Clearing Union (ICU) that would treat all nations more fairly, and help maintain balance in the international trading system. The ICU would hold all international reserves and clear all international payments for trade in goods and services. Countries would be able to pay for imports in domestic currency rather than dollars, obviating the need to amass foreign currency. The ICU would also act as stabiliser by building up its own reserves and acting as lender of last resort.
Masters or servants?
Indebtedness is the concept of living beyond our means and beyond our environmental budgets, of mortgaging the future, of being in hock to creditors and usurers. Christian leaders should once again take up the cudgels against usury and emulate their leader, Christ, in chasing money-lenders from the temples.
Finance sector elites must be ousted from their role as masters of the global economy, and be returned to their proper role as servants to the productive economy. We do not have to live within the moral and ethical codes of a financial system designed by usurers. We can base a new system on values we hold dear: respect for the planet, and all life on it; our love for family and friends; our responsibility to future generations; our concern for neighbours and communities; our commitment to optimal scale, distributive justice and full employment.
The present crisis will bring increased hardship to billions globally – a crime of economic policy-making that refused to recognise the need for limits. But this financial crisis also gives us the chance to re-establish the ethical boundaries for all aspects of our lives and the systems we create, for future generations.
-- Ann Pettifor