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"The bankers lost their honour"

Does a ‘moralization’ of the crisis help to understand it? Kwame Anthony Appia, moral philosopher at Princeton University who has recently been elected to the Presidency of the PEN American Center, has doubts.

In public opinion, the financial crisis is seen as a result of excessive greed. Do you consider this view to be correct?

This interpretation is not helpful for understanding the crisis, as greed cannot be attributed to a specific group of actors. Although the investment banker is currently the preferred target for this attribution, the lay person who took an unrealistic high mortgage on his house for financing higher consumption could also be called greedy.

Then everybody was greedy…?

We don’t gain much understanding by this statement. On the contrary, the greed accusation tends to inflate the discussion unhelpfully to a moral level – it’s more the search for a scapegoat than an analysis of the causes of this crisis. We have to accept that greed is a robust component of human nature. A main finding of current ethics research is that the context into which people are placed defines to a large extent their moral behaviour. Thus, the disastrous consequences of greed result from specific conditions. Those have to be discussed. We need a systemic, not a moralistic, answer.

But explaining the crisis using the concept of “greed” is understandable for many people, whereas talking about “structures” that have to change remains obscure …

Indeed, we have a tremendous analysis problem. We have many explanations for the crash, but we do not know which one is correct. First of all, many people did not have the slightest idea about the complexity of the economic system. Who, for example, knew about the existence and relevance of the inter-bank market, in which billions of dollars are moved daily? Certainly, experts were aware of this, but I doubt that they were able to assess fully the consequences of a failure of this market. During the crisis, even institutions and companies with indisputably valuable assets, like General Electric or Harvard University, have difficulties getting credit. We don’t yet have an analysis that explains such facts.

Why are you, as a moral philosopher, interested in this crisis?

I’m interested in the question of which moral institutions have failed in this crisis, although evidence of systemic problems was available for years. I remember advertisements promising credit to people who wouldn’t have to disclose their assets in any way. One does not need much economic understanding to see that something is deeply wrong when such ads appear. Many insiders in companies and other institutions probably had found many hints indicating that something was going wrong.

But obviously nobody said anything…

Indeed. This demonstrates that it is not enough to see structural problems. The structures must also provide for concerns to be heard. I see parallels to a well-analyzed problem – the emergence of genocides. After the Shoa, substantial research was done to understand the conditions that made genocide possible. I know the case of an ambassador in Rwanda, who clearly was able to predict the genocide of 1994 weeks in advance – but he did not inform his foreign ministry until the murder had started.

Why did he stay silent?

His thought was: ‘If I report my observations and evidence early, I will scolded as a hysteric and nothing would be done – and my reputation and my job will be at risk.’ So he waited. But let’s assume that he had spoken out in advance and the international community had reacted – in the case of Rwanda, for example, by stopping some agitating radio stations organizing the genocide. In the best case, nothing would have happened. And this ambassador would not be remembered as the man who prevented genocide. He would be remembered as “this hysterical guy”.

So the problem was that there were no incentives to report failures?

Indeed – and a similar mechanism today has probably maintained “business as usual” despite crisis symptoms that attracted the attention of at least some insiders. One cause of this problem is that whistleblowers are troublesome. Although we do a lot to protect them legally, social psychology shows us that such “squealers” provoke reluctance even in those collaborators who profit when grievances are uncovered. For example, the US Army has a sophisticated system to protect whistleblowers. But in fact, if a member of the Army decides to disclose a grievance, he probably has to leave the Army.

How can this problem be tackled on a system level?

With this example, we can show how morality and this systemic level come together. Humans are not just driven by psychological factors like greed or reluctance to blow the whistle – we also have relatively strong psychological components that work against these factors. An important and interesting factor, in my view, is honour. Honour acts on the individual as well as on the social level: a dishonoured person loses his public face and also feels inner sanctions. For many current ethical theories, honour is a bulky concept – one does not really know where to put it. But in the everyday lives of ordinary people, honour is indeed important as soon as they start to have relationships with each other.

And what is the systemic component of honour?

Honour stabilizes relationships, including business relationships. It’s not only about reputation because reputation concerns only the image towards the public. Honour also requires an inner obligation of people who deal with each other. This requires direct, personal contact between people interested in doing business with each other. They have to look each other in the eye. As soon as honour comes into play, time has to be created to allow personal contact. But the financial world has become so “efficient” – as one usually says – that time has become short and relations have become depersonalized. Thus, humans lose the normative feedback that enriches business relations – and they lose their honour. By the way, it’s ironic that in the U.S., in particular, conservative political groups that rely much on honour in their political rhetoric, created the conditions, by deregulation, that promote dishonourable behaviour.

But does appealing to honour solve the problem? After all, there are no moral obligations attached to honour.

Certainly such an appeal is not enough – as there exists also honour among thieves. But the importance of honour is that it requires specific forms of relationships in finance that go hand-in-hand with a deceleration of the system. It has been said that automation is efficient – but this efficiency was obviously also one of the causes of the crash. Therefore, we have to abandon some forms of efficiency. But I believe that we also need to refocus on fairness in the system.

What do you mean by that?

The current discussion about greed often refers to a weak point of the system; that is the gap between rich and poor people has widened. This is unproblematic, as long as poor people profit too, as can be seen in emerging economies where protest usually does not focus on the widening gap between rich and poor. But in the U.S. the income of the lower part of society has stagnated over decades, whereas the rich have become much richer. This causes a problem of justification that has to be addressed now. I don’t think that this requires a fundamental change of the market economy – but history shows that capitalism works better when the income gap is smaller than it is today.

Is it realistic to imagine that this problem will be tackled by the new U.S. administration?

Amazingly, there was little discussion of poverty during the presidential campaign. John Edwards was the only one who raised it, but he fell out of the race early. The dominant topic was the decline of the middle class. But poverty will become an issue because President Obama faces huge budgetary problems. The financial crisis is only a part of this problem; the U.S. also has huge expenses for the wars in Iraq and Afghanistan. The American political system has difficulty dealing with such issues. It is constructed in such a way that the government finds it hard to take focused and sustainable action. Every two years, a portion of Congress is re-elected – a very short time span, given the unpopular decisions that have to be made.

What should be done, in your opinion?

The United States has to realize that it is in a phase of imperial decline. I was raised in Great Britain and saw how the Empire lost its colonies and, with it, much of its self-conception. One of the first things that declining empires usually do is reduce their military spending. Most Americans don’t have the slightest idea how much their country spends on the military compared to the rest of the world. For example, we have military bases in many countries, whereas other states have collaboration agreements for the same purpose. In addition, the U.S. military policy that the country should be able to fight two wars at the same time will in future not be fundable. But can a U.S. president say this to his people?

Is the economic rescue package overcharging the U.S.?

We do see signs of such an overload. I’m not primarily thinking about the financial burden but about the fact that the government is currently owner of many banks and the largest insurance company. Usually, such “takeovers” are prepared by large teams – but does the Treasury have these people? I don’t believe so. I’m astonished at how the Treasury has been able to deal with these issues so far. In fact, the Treasury is now the most powerful ministry in the U.S. instead of the Department of Defence. This reflects the future reallocation of power in the U.S.

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