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Who Creates Values?

by Ernst U.von Weizsacker Monday, Sep. 12, 2005 at 12:21 PM

"Unfortunately some market fundamentalists are at work in the EU who denounce every-thing the state does to protect public goods as distortion of competition.. The globalized market shatters balance of public & private.."


The Globalized Market Leads to Ominous Value Conflicts

By Ernst U. von Weizsacker

[This address at the 30th Evangelical Church Day in Hanover, May 26, 2005 is translated from the German on the World Wide Web,

I was asked to discuss the question who creates values. Different values are in conflict and are represented by different persons.

This was always true. The values of Christians are in conflict with values of other religions, the values of immediate wish satisfaction with those of long-term development and the values of the older generation with those of youth.

In this “hall of globalization,” I propose and defend the thesis that the globalized market or “globalization” leads to new ominous value conflicts that eclipse all past value conflicts.

The economy and the global actors have succeeded in monopolizing the beautiful term “value creation.” Value creation comes from the works of human labor, capital gains and nature. In the global competition today, realizing the highest value creation from capital gains is most important. Profit is higher when the costs for labor, capital, nature and taxes are lower. The Chinese wages usually allow businesses greater profits than German wages. We are confronted with the problem of Germany as a location. We realize that global competition leads to a crass asymmetry of power between capital and labor.

Ladies and gentlemen, I hope you will follow me when I do not restrict the theme “Who creates values?” to the economists’ definition of the term “value creation” and point to the value conflicts that we have to overcome.

From my perspective, the most important conflict today is the conflict between the religious, especially the Christian, and public values on one side and private values on the other.

In public values, I include what holds a society together that cannot be for sale on the market. These include the values of a democratic solidarian society, the value of a healthy environment and a long-term orientation. Legal security, public education and the infrastructure are counted as “public goods” in the economy. Christian and public values are obviously not less important in the gross domestic product than the sum of economic value creation.

Society needs a good balance between public and private goods. Good economists know that the economy depends on all the public goods, on the constitutional state, public education and the environment. The economy needs the public spirit that thrives best in democratic societies with a tolerant religious orientation. Simultaneously we see with horror how the “laws of the market” reward firms that skillfully evade financing all these public goods. The laws of the market no longer stabilize the desired balance. They shatter that balance.

This is new. For 200 years, people in the Anglo-Saxon world assumed that the market, freedom and democracy support one another. Adam Smith, the great Scot inventor of the market economy, postulated 200 years ago the very religiously intended invisible hand that transforms the self-interest of individuals into the public interest and the prosperity of nations. Self-interest stimulates value creation and value creation can be shared. Conversely democracy can insure that the successful businessmen or the wealthy aristocracy do not run away with the spoils but contribute to the prosperity of everyone in the country.

The unity of market, freedom and democracy was very plausible as long as the political opponents were war-mongering kings, doctrinaire communists or fascists who all reject democracy as well as freedom and the market. The bundle of freedom, democracy and the market economy was the core of western values during the Cold War. They were rightly victorious over communism.

In the time of the Cold War, the economy had a strong political interest in warding off communism. Liberal democracy was necessary for this! Something had to be spent for this! The very costly American Marshall Plan for Europe that was full of blessings was understood as a response to the aggressive communism of those days. The same motive drove Konrad Adenauer and Ludwig Erhard with the social market economy. In the time of the ideological war with communism, capital also accepted joint determination, high taxes and effective industrial supervisory boards.

All this is now past. With the end of the Cold War, the motive for the social market economy was lost to capital in 1990. Freed from past considerations, capital discovered the charm of global cost competition. This is the core of “globalization.” This word first appeared in popular German language after 1990. The GATT-Uruguay round criticized by Vandana Shiva, the most extensive and ambitious free trade round, first picked up speed after 1990. It had marked time in the first four years after 1986.

That stronger free trade and global competition sometimes burden businesses is nonsense. The businesses themselves are the chased. But if they are the chased, who are the hunters? The hunters are the actors on the capital markets, first of all the mammoth American pension funds. One of them, Fidelity, has assets of more than a trillion dollars, three times the German budget! These institutional investors are in competition with one another. The criterion is capital gain. One wins by gaining systematically higher profits and offering one’s shareholders more than the others. These profits become the benchmark.

All this sounds logical and is constantly sold to us as unavoidable. The Deutsche Bank needs 25% capital profits. Otherwise it can no longer keep up with its international rivals. Then Germany will not have an international bank any more and will become the plaything of non-German banks. Thus the business paper (Handelsblatt) defends Mr. Ackermann’s actions (in laying off 1600 employees amid record profits).

Tell me, ladies and gentlemen, isn’t that terrible? What happens to democracy when parliament and government see themselves forced to improve conditions for the capital markets and only those who act cynically for the sake of profit are left on these markets? What becomes of hope when everything is described as “unavoidable” and only discussing the morals of the actors is denounced as damaging the location Germany? What happens to moral decency and values beyond economic value creation?

No, ladies and gentlemen, we may not simply reign to this condition. The Reformed World Alliance resolved last summer in Accra (Ghana) “We say No to the present world economic order forced on us by global neoliberal capitalism.” The Lutheran World Alliance made a similar declaration a year before in Winnipeg.

In the economy there are also many intelligent and responsible persons who agonize when they satisfy the profit conditions of the capital markets. In many branches, this cannot be done without cruelty and cynicism toward employees and suppliers!

One way of dealing with the problem is Corporate Social Responsibility or CSR. A code of honor is adopted; co-workers are called to observe this code. CSR is an attempt to respect values beyond the purely economic value creation. It is a serious possibility for goodness and reconciliation with a deeply alarmed society. I am grateful for this and accept its sincerity. Firms with strong CSR have greater credibility and are rewarded more than punished on the stock markets.

Nevertheless firms must be measured by their deeds, not by PR.

John Perkin’s “Confessions of an Economic Hit man” describes the dishonest rhetoric of the government and corporations. He emphasizes how the globalization conquerors systematically pursue the indebtedness of developing countries and then make them the linchpin for political dependence.

We assume firms will really take seriously social and ecological responsibility. Then it will be of great advantage for these firms when the competition must also observe the new rules. Binding rules were self-evident for a beneficial effect of the market according to Adam Smith and David Ricardo.

The question of ways out of our annoying situation is raised. We need legal norms that have the same geographic range as the market. We need “global governance.” If the market is global while the rules are only national, actors full of tricks will seek out places where few rules are in force. Dirty or ethically problematic supply services will be transferred there.

The European Union is an important step on the way to global governance. But unfortunately some market fundamentalists are at work in the EU who denounce everything the state does to protect certain public goods as “distortion of competition” to force the total free service market or capsize the Volkswagen law formulated to protect Lower Saxony interests. The EU knows and practices the social market economy, particularly through an impressive regional balance from which East Germany profits. In international negotiations, the EU regularly appears as an advocate of public and moral interests like conservation and human rights.

“Global governance” with deeper goals than economic value creation will only succeed with a watchful international civil society. The churches are part of that civil society. They have a right to demand observance of decency rules from the economy and the state. They defend public and ethical values over against pure shareholder values.

Civil society can also generate public pressure. I remember how support of the Greenpeace action against the sinking of an oil platform in the North Sea was voted on at the 1985 Hamburg Church Day. This may have been decisive in the success of the campaign.

Beyond international rules and strengthening the civil society, I think we need a new step of enlightenment. Earlier I spoke of the Anglo-Saxon conception that the market, freedom and democracy imply and strengthen each other. To a certain extent, that is the essence of the Anglo-Saxon perception of the enlightenment. For us on the continent, the enlightenment has more to do with human rights, freedom and democracy. We gladly accept and promote the market as long as it does not endanger the other values. However this became a bitter reality after 1990. The globalized market shatters the balance between public and private values.

Diagnosing this historical breach of 1990 and pointing out worldwide that the beautiful harmony between market, democracy and freedom can be restored when the market adapts in legal norms that it cannot evade geographically. With these legal norms, I do not think of what is negotiated at the World trade organization (WTO). The WTO only pursues rules for more market against other values.

In searching for those who create values, we are suddenly in the political realm. I postulate the value of good balance between ethical-public and private goods. I demand international legal norms. I call upon civil society to express its public and ethical desires with the threat of public pressure. Finally, I urge a new step of enlightenment that makes clear to us and our Anglo-Saxon friends why the beloved unity of market and democracy is crumbling.

Dear political leaders, ladies and gentlemen, I will be glad if you accept this as stimulation for the further discussion.

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