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"There is an alternative to profit maximization"

by Peter Ulrich Tuesday, Aug. 02, 2011 at 9:40 AM
mbatko@yahoo.com

The economy should be a part of life, not a steamroller crushing creativity and self-determination. The economy should be embedded in society; society should not be privatized and confiscated by the economy. The public sector must be expanded to create jobs.

“THERE IS AN ALTERNATIVE TO PROFIT MAXIMIZATION”



Interview with Peter Ulrich



[This interview published in: Frankfurter Allgemeine FAZ.NET, July 12, 2009 is translated from the German on the Internet, http://www.faz.net/artikel/C31364/wirtschaftsethik-es-gibt-eine-alternative-zur-gewinnmaximierung-30064170.html.

Peter Ulrich from 1987 to 2009 was a professor of economic and business ethics at the University of St. Gallen, Switzerland. His most recent book is: Integrative Economic Ethics (Cambridge University Press, paperback 2010)]



[In a new encyclical, the pope denounced profit-mongering. The Sunday Frankfurt newspaper spoke with the economic ethicist Peter Ulrich. He defends the Holy Father in this point, criticizes managers and urges integrated economic ethics.]



Professor Ulrich, the pope in his new encyclical wrote people should not speculate with money. Is speculation really bad?



Generally not. But when the speculation mentality replaces all regard for practical consequences, that is irresponsible.



As a lesson from the crisis Benedict urges valuing highly the long-term benefits of investment for the real economy, not striving for the highest short-term profits. What does that mean?



Basically he demands putting financial management, all banks and investment companies in the service of the national and global economy and thus reversing a relation that contributed greatly to the current problems.



Morality or moral standards are obviously included when the pope speaks explicitly on the crisis.



Certainly. If this crisis could be reduced to a central point, it is a money thinking that makes itself too radically independent.



Does that have anything to do with the complex financial products that many buyers obviously did not understand?



So-called financial products – nothing is produced – are a typical symptom of this profit maximization doctrine. In them risks are veiled, securitized and scattered around the world. The nature of these products ultimately consists in making money out of money without going the troublesome roundabout way through the real economy.



Is that bad?



The principle of making more and more money in almost any way is the core of the problem, not the solution.



In economics textbooks we read everyone benefits when someone tries to make the greatest possible killing by investing money.



We are beginning to see that an ideology is hidden behind this harmony idea that tries to sell particular interests as the public interest or “prosperity for everyone.”



What do you mean?



Some profit fabulously from the market economy and simultaneously tell us we will all profit.



The high profits of the banks contributed to growth before the crisis and thus increased the general prosperity which is good.



I disagree. The high profits are a result of one-dimensional thinking. Profit maximization means that I subordinate all conflicting value considerations to this one dimension without regard for the consequences for affected persons. For too long the billions in profits of the big banks were acclaimed in a simple-minded way and no one wanted to know how they came about.



Is there an alternative to profit maximization?



Yes. A fair well-balanced economic mode would begin asking what are legitimate goals of economic conduct.



The pope admonishes and criticizes a “cosmopolitan class of managers who often only follow the instructions of the main shareholders.”



Yes, he writes that good business leaders must also consider employees, customers and suppliers.



Is it ruthless when a bank manager urges 25 percent profit for his institute?



This goal is open to attack. A boundless striving for profit is an essential cause of the mess. It is a fatal signal when numbers like 25 percent profit are passed off as the only binding target of desired business success. A rethinking has not occurred.



Must not managers – who also want to feed their families – strive for high profits because the owners would otherwise throw them out.



I call that “practical constraint rhetoric.” It is strange the same people who try and fool us in fancy speeches that the market is the essence of freedom constantly speak in this mode of the imperative. Someone, usually anonymous competition, forces them to this or that.



This competitive pressure is not imaginary.



Subjective mental constraints (Denkzwaenge) stand behind the practical constraints. The profit maximization doctrine itself ultimately produces the pressure to reckless business practices. We citizens expect more from true leaders. People are credible because they have integrity and their economic thinking is not split off from their self-concept as decent citizens.



What would make this better?



Managers should always insist on serving all people, not only the owners, and never speak only of profits.



Don’t we also need better incentive structures that make possible such conduct?



Deterministic thinking in incentive structures is itself a problem. We are all degraded intellectually to marionettes. Then costly leaders are not needed because they would have almost nothing to decide and justify any more. That is obviously not true.



Can you explain that?



Businesses are very elastic structures. Leaders could and should determine the direction according to responsible principles.



What is left for politics?



Politics has the task of forming framing conditions that are useful to society. Politics should no longer think so technocratically about the economy. Certain ideas of what is good and right stand behind all “incentive structures.”



What else?



We cannot answer the question why economic conduct should be efficient with purely economic categories. Practical and social criteria are vital.



A colorful rainbow of life designs for a good life flourish in a liberal society. The problem of existing practical constraint structures is that they limit rather than expand the real freedom of citizens. Our goal should be a society in which all citizens live in real freedom. To that end, we must distinguish clearly between civic freedom and the free market.



Are we not free in the market? We can choose between many products and training courses.



Real freedom is leading a self-determined life, not only in consumer freedom.



Can we bring about a new economic mentality?



Education is the key. We need a comprehensive economic citizenship analogous to civil and political citizenship. Knowing only the functioning principles of the free enterprise system is not enough without understanding its corresponding role in a well-organized society.



Should economic citizenship be on the schedule?



For example, when I learned as a young person that consumption alone does not constitute the fulfillment of life, I desired a corresponding social order in which not everything is subordinated to economic logic. Whoever sees having more money as an end-in-itself naturally feels threatened as soon as politics tries to exert influence here.



What if someone merely wants to earn more money?



In a pluralist open society, individuals should think as they want and be free to think in a money-oriented way in their private sphere. However, they should not expect others to adjust everything according to their philosophy of life. That would be as intolerant as every religious fundamentalism.



In conclusion, twenty years ago you founded the Institute for Economic Ethics in St. Gallen, Switzerland. Has your work gone down well?



Yes, it is even gaining importance. Twenty years ago the saying of the satirist Karl Kraus made the rounds where a student comes to his professor and says he would like to study economic ethics and the professor replies: “Now you decide young man, one or the other.” Happily we are far from this today.

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