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Justice Before Efficiency

by Peter Ulrich Tuesday, Jan. 24, 2012 at 12:53 PM

The market economy must be bound to the principles of a fully-developed civil society. More is involved than a belated redistribution. A citizen is basically a social being. To overcome feudalism, precedence must be given to human- and civil rights over the power based on property.


Interview with Peter Ulrich

[This interview published in the Swiss WoZ 1/5/2012 is translated from the German on the Internet http://www.woz.ch/artikel/archiv/21581.html. The emeritus professor Peter Ulrich at the University of St. Gallen, Switzerland wants to civilize the market economy so it serves society. In this interview, he speaks about the supposed value-neutral ideology of neoliberalism, the partiality of the market and the egoism of owners.]

WoZ: Mr. Ulrich, we are now in the fourth year of an economic crisis. A great lack of orientation exists. Is the crisis also a crisis of thinking?

Peter Ulrich: Certainly! Everyone says economic life must be different but no one says how. We are mired in fog. Many are still blocked in the old ideological dispute more state versus more market. But this is not the real conflict. A highly developed economy needs an intelligent combination of market incentives and constitutional framing conditions. That is trivial. Our real problem lies elsewhere, in the mixed up relation of market economy and civil society. How can we intelligently organize society so the free enterprise system serves the good life of all citizens? At the moment society is subject to the practical constraints of an economic system with an excessive self-dynamic.

Do you urge a social market economy?

That is too vague for me. A social market economy can have three forms. For libertarians, social is only an embellishing decorative epithet. For them, the market economy is social per se. In the second traditional social-democratic way of thinking, the market economy is socially corrected. The goal is producing a certain balance through compromise and redistribution. The third possibility is the one I advocate. The social factor is understood as constitutive for a market economy useful to life. Constitutive means ordered constitutionally. The market economy should be socially legitimated. The market economy must be bound from the start to the principles of a fully-developed civil society. More is involved than a belated redistribution. I plead for a civilized market economy.

This means the priority of civil-liberal social policy before market-liberal economic policy. Justice should have precedence before efficiency. Today it is often said we must socially tighten our belts in the name of economic efficiency. Here is an example of the rhetoric: The global location competition forces us and this serves public welfare. I call this the market-metaphysical public welfare fiction.

How is this a fiction?

The harmonistic belief in the invisible hand of the market is taken as a basis for formulating the public interest fiction. This is ideological insofar as particular interests are passed off as general interests.

Is that your definition of ideology?

Yes, ideological messages are always loudly propagated when special interests obviously dominate in public decision-making processes. These special interests are hidden behind public interest rhetoric. The vast population is deluded that everything that helps the interests of capital exploitation is also in the interest of the general public although the general public is often disproportionately burdened.

Isnt this a perfect description of neoliberalism?

Indeed it is. My question is: Why did this succeed so amazingly for neoliberalism in the last thirty years? In this example, one sees the mastery of functioning ideology very well. Neoliberalism conceals its normative stamp and interest-orientation behind an emphasized practicality. Whoever is for more market is practical. Whoever argues for less market or against the market is impractical or subjective. Although this is ridiculous, neoliberalism has succeeded in hiding under a veil of ideology-neutral free enterprise practicality. Whoever criticizes this is branded as a utopian, an unrealistic romantic or an ideologist. As an economic ethicist, I have often experienced this.

How can you counter such neoliberal thinking?

For example, by asking: who benefits? As an economic ethicist, one has to descend into the dark cellar of the economic thought structure, illumine the darkness with a flashlight and reveal what is hidden in normative background assumptions and preliminary decisions.

The market is powerful. When a free market functions efficiently, it reflects the current power relations between the market partners no more and no less. The market principle is systematically partial for the strong, for those with enormous capital. Whoever has capital and is financially liquid can wait for good business conditions. Whoever sells strawberries cannot wait. He or she must sell under any conditions.

Economic-political recommendations are seldom as neutral as they pretend. Here is one example. Up to the financial crisis, the Sachverstndigenrat, i.e. the council of experts for the German economy the name implies impartiality usually admonished the unions in its fall expert opinion not to demand excessively high wages. The state was urged not to overspend. On the other hand, the council of experts has practically never admonished owners of capital to be reserved with their boundless profit demands or their tax resistance as though profits and taxes had nothing to do with the problematic macro-economic development and the state deficits.

Should the economic wise men have demanded shareholders to minimize profits?

No, this reverser conclusion is obviously absurd. However it consciously reflects a reflexive attitude that I often heard in the economy: Either we allow businesses to strive for profit maximization in any way or we support an ethic of red numbers. A business must ensure its long-term investment- and earnings-power and possibilities. A business must not only serve the profit interests of the owners. It can also say: we want to do profitable business and also contribute to the public welfare. We want co-workers, suppliers, communities and coming generations to live a good life. A far more meaningful idea of entrepreneurship results with many possibilities for innovative business models.

You have often criticized the current explanation that our supposedly perfectly ordered egoism relieves citizens of moral standards. Are we living today in a system without morality?

No, our life-world does not end in the economic system. A citizen is basically a social being. Mutual respect and acknowledgment are essential for everyone. That is the core of morality. But there is a middle class ideology today that stylizes the identity of the free citizen as a possessive citizen. Libertarians defend this possessive individualism that even rejects democracy as far as it restricts the freedom of individuals. Our alarm bells must ring out. Absolute egoism dominates in this thinking. Property makes one free that is largely true in a capitalist order. Whoever takes this seriously and is not a cynic must conclude that all citizens should have enough property to live free.

But libertarians do not draw this conclusion.

Whoever takes this logical step is a liberal, not a libertarian. A libertarian is ultimately an egoist who does not want to share anything with others and makes an ideology out of this. This also means running down the state and reducing the state to preaching a policy of empty treasuries and so on.

In Switzerland, libertarian positions are now gaining ground Do these people pose a danger for democracy?

The influence of this circle has grown over the years. The change in the hierarchy of power is reflected here. The propertied have an increasing political influence. Therefore the political danger from this side is much greater than from the weak left. Someday, our grandchildren could say a Golden Age existed in the postwar era that unfortunately was swept away. This is a real danger.

You use the term neo-feudalism.

In feudal society, the law of property and human rights were not sharply distinguished. The people who lived on a farm were serfs of a feudal lord without rights. The modern age realized the idea of inalienable human- and civil rights. These rights are increasingly evaded by the law of property. The crucial concern is organized capital in the form of businesses and no longer ownership of agricultural land. On financial markets, stock packages are traded enabling acquisition of control and power over businesses. This represents power over people who are dependent on this enterprise. The typical case is when jobs are shifted abroad even when a firm is economically profitable. Then a great public outcry arises because feudal times seem to be recurring.

To definitively overcome feudalism, precedence must be given to human- and civil rights over the controlling power based on property more forcefully than in the past. Then the mass dismissals of workers as a pure means for increasing profit would not be as simple as today.

In your book Civilized Market Economy, you write: Whoever is existentially dependent on others cannot really speak publically. Are we unfree today?

We should not ignore the achievements we enjoy today. Still the realization of freedom is a historically unfinished project. The elementary rights of personality, equality before the law, freedom of religion and speech and the inviolability of the person against all kinds of incursions stood at the beginning and still stand at the beginning in some countries. In Switzerland, we still have problems in questions of cultural identity as the head-covering debates and the minarette prohibition show. In principle, the fundamental personality rights are undisputed. In a second step, political civil rights were added. People often forget women could not vote in Switzerland until 1971. The third stage involves social and economic civil rights. In the Middle Ages, people said city air makes one free. Today, we have to say that purchasing power makes one free. We are still caught in the middle of this development. The right to property was guaranteed as the only economic civil right at an early historical time. The AHV (i.e. the Swiss old age pension scheme and disability insurance) was added in the middle of the 20th century. Apart from that, the socio-economic basic rights are only weakly developed. This development will continue because real conditions require it.

What will happen? With the present balance of power, the initiative for a national inheritance tax, e.g., has a very hard time

I am not so pessimistic.

Redistribution from top to bottom is increasingly difficult in Switzerland even though the majority would profit from this. Solidarity with the rich seems greater than with the poor.

Switzerland would be different than it is if social changes had been impossible. Leading thinkers urged 250 years ago: Let us create democracy! At that time the old elite replied the man on the street cannot manage this, the people are overstrained. But history shows that society some time or other was enlightened enough to implement reasonable ideas. There are enlightened ideas with an irresistible and irreversible attraction on people. It is only a question of time.

That sounds very optimistic.

History does not move linearly. There are relapses. Fascism and Stalinism were horrible examples in the 20th century. Certainly, the modern age overstrains many people. We are not half as modern socially as we believe.

How can modern ideas gain acceptance?

The partiality of the existing rules must become so blatant that the majority of citizens seek change because they recognize the possibility of a more just social order. Then the solidarity with the privileged of the old order also disappears.

That is the old impoverishment theory according to which people revolt if life gets bad enough.

We now have the vote in a somewhat functioning democracy. Either we go through the valley of tears or we recognize the causes of the problems as come-of-age citizens and tackle them.

The Occupy movement is a counter-project. Although the desires of the 99 percent are broadly accepted, this acceptance has not reached far enough for a change.

In ones daily routine, the individual faces practical constraints and thrashes about to maintain him- or herself in this situation. This was always true. Therefore the education elite often launched certain developments. The U.S. constitution of 1789 and the first Swiss constitution of 1848 as well are marvelous achievements of the middle class elites at that time. The time was ripe and a tremendous accomplishment happened.

In the debt crisis, Germany set the tone. For years, Germany lowered wage costs, was competitive and profitably exported. At the same time, Greece incurred debts. The demand for German exports fell. Now Germany complains about Greek debts and insists on austerity measures. Is there a basic imbalance or disproportion in Europe?

This is an essential cause but not the only cause of the present crisis in Europe. Germany has always had a high-performance industry and a high measure of competitiveness. For that reason, Germany has greatly profited from the European market and the euro. The D-mark would have been upgraded, too, analogous to the Swiss franc. As an avoidable error, Germany followed a very one-sided neoliberal economic policy in the last twenty years.

above all under the Left-Green government

Right. Under the leadership of the SPD and Schroeder, Germany pursued a one-sided export-oriented economic policy that from a Swiss perspective led to an incredibly low wage level even for highly-trained workers. Not surprisingly the other EU countries cannot keep pace any more.

Germanys economic strength has a political effect. Angela Merkel calls the shots in Europe.

She defends the practical constraint logic of the current system. She always says, There is no alternative.

Will Europe become increasingly authoritarian on account of these developments?

From the beginning, political Europe had a deficit in democratic structures and became increasingly technocratic. The beginnings of democracy like the EU parliament are weakened, not strengthened. This is a dubious development. From a Swiss view, it is even astonishing. Thinking of democracy on several planes on the local community-, canton-, federal- and Eur5ope-planes is not a problem. But I do not see any efforts in this direction. The people is increasingly seen as a disturbing factor by Europes political elite.

The peak of this development was when Giorgos Papandreou had the audacity to let the Greek population vote on the austerity package.

I was amazed over the media reactions even in Switzerland. People could have said: Marvelous! A prime minister had the courage to say: the decision is so far-reaching that it must be legitimated democratically.

The crisis seems to strengthen rather than weaken neoliberal capitalism. Are we heading for an authoritarian capitalism?

There is a very alarming element in this crisis: the combination of constant intensive cost-pressure in the location competition with the new precariousness in the world of work together with the arising social distress. This hides the danger that we could be headed for an ambivalent social-police-state.

What do you mean?

The social cushioning maintains law and order. While the comparison is somewhat spiteful, I recall that it was planned to centralize the police and social departments in the canton of Zurich some years ago. That did not happen consciously and fell apart after the voters declined the proposal, as it called to mind third world conditions where social unrest is put down with force. Instead people could say: we dont want to simply repress the symptoms of unsolved problems but correct the social conditions in a civil society where everyone can lead a self-determined life under reasonable material conditions.


The economist Peter Ulrich (63) is an emeritus professor of economic and business ethics. In 1987, he founded the Institute for Business Ethics at the University of St. Gallen (HSG) which he directed and shaped up to 2009. He developed an Integrative Economic Ethics (Cambridge University Press, 2008/2010) that sought to connect practical economic logic and ethical reason. He is a member of Kontrapunkt, a group of scholars and social scientists at Swiss universities that meddle in current debates with contributions on public reason.

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