As the royal commission prepared to resume its hearings into financial services the Vatican released Oeconomicae et pecuniariae quaestiones (OPQ), a clunkily translated document (reviewed here in detail), on the ethics of markets.
Although written quite independently, passages of the document could have been mistaken for factual reporting of the royal commission. It speaks, for example, of financial advisers:
'Among the morally questionable activities of financial advisers in the management of savings, the following are to be taken into account: an excessive movement of the investment portfolio commonly aimed at increasing the revenues deriving from the commission for the bank or other financial intermediary; a failure from a due impartiality in offering instruments of saving, which, compared with some banks, the product of others would suit better the needs of the clients; the scarcity of an adequate diligence or even a malicious negligence on the part of financial advisers regarding the protection of related interests to the portfolio of their clients; and the concession of financing on the part of the banking intermediator in a subordinate manner to the contextual subscription of other financial products issued by the same, but not convenient to the client.'
The significance of this and other judgments of OPQ is precisely that they are not descriptions of individual crimes but flow logically from a defective understanding of the economy shared by its actors. They are not aberrations but natural consequences of a shared ideology.
The naivety of conventional economic wisdom, in the view of OPQ, is that it regards economics as a science independent of ethics. It abstracts economic transactions from their full human context, seeing them simply as directed to profit-making by competitive individuals. It holds that a market as free as possible from regulation will benefit society as a whole.
OPQ sees a sophisticated market as beneficial to society provided that it is seen as composed by human decisions and so serves human goals that go far beyond individual wealth making. Money is a means not an end. The market will serve society as a whole only if it is governed by ethical reflection:
'In principle, all the endowments and means that the markets employ in order to strengthen their distributive capacity are morally permissible, provided they do not turn against the dignity of the person and are not indifferent to the common good.
"In each of these areas, OPQ focuses on the human qualities that should be reflected in the transactions involved."
'At the same time, it is clear that markets, as powerful propellers of the economy, are not capable of governing themselves. In fact, the markets know neither how to make the assumptions that allow their smooth running (social coexistence, honesty, trust, safety and security, laws, and so on) nor how to correct those effects and forces that are harmful to human society (inequality, asymmetries, environmental damage, social insecurity, and fraud).'
The ethical framework developed in the document asserts the non-negotiable value of each human being, their freedom, the interdependence of human beings in society, and their consequent responsibility for recognising this in all individual choices. In all transactions, as in all human actions, we need to take into account the other relationships which are involved, including those to society as a whole.
From this perspective the document identifies what it sees as current defects. It discusses the pursuit of profit at any price, the cosy relationships between regulators and institutions, the denial of responsibility to the wider community, the greed built into remuneration, the venal and deceitful behaviour of financial advisers and the confinement of ethical responsibility to the minimal observance of laws that cannot be evaded without prosecution.
The practical issues discussed in the document include: the need for coordination of regulation at an international level and for ethics committees in financial institutions; lines of credit; speculation that destroys social value for private profit; manipulation of exchange rates; derivatives; credit default swaps; the need to demand compliance to moral as well as legal demands; and the regulation of offshore transactions to avoid tax.
In each of these areas, OPQ focuses on the human qualities that should be reflected in the transactions involved. In its treatment of derivatives and CDS, for example, it sees a lack of the transparency that should characterise any transaction, particularly on the part of the more powerful partner. This lack of transparency meant that when the transactions unravelled, profits stayed with speculators while society bore the costs.
The lessons the royal commission might draw from this analysis are sobering. Regulation, prosecution of executives, shaming of board members and effective systems of accountability may deal with the indecent and rapacious behaviour revealed in the hearings. But they will not touch the self-serving ideology subscribed to by economists, politicians, financial executives and journalists. That demands more than compliance. It requires conversion.
Andrew Hamilton is consulting editor of Eureka Street.
Main image: Pope Francis at the general audience in St Peter's Square on 23 May 2018. (Daniel Ibáñez/CNA)