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Economic Ethics After the Crisis

by Peter Ulrich Wednesday, May. 22, 2013 at 2:42 AM

Peter Ulrich is an emeritus professor of Economic Ethics at the University of St. Gallen, Switzerland and author of Integrative Economic Ethics (2008). The economy should be embedded in society; society should not be embedded in the economy. The invisible hand is a myth to be unmasked.


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by Peter Ulrich

[This essay published in 2011 is translated from the German on the Internet,

Peter Ulrich is an emeritus professor of economic ethics at the University of St. Gallen, Switzerland, and author of Integrative Economic Ethics, 2008.]

A problem cannot be solved within the same pattern of thought that caused it, as already Albert Einstein has emphasized. Moreover, what is seen as a problem and what is seen as a solution is essentially normative. The confusion between problems and solutions is one of the hardly considered backdrops of the financial-, economic- and debt crises and ways of dealing with them. In the last 30 years “more market and more competition” (deregulation, globalization and privatization) were regarded as general prescriptions for solving nearly all economic- and sociopolitical problems by leading circles embodying an ideologically radicalized economic liberalism. The financial crisis was recognized as a “systemic crisis” without questioning the basic normative orientation of the economic system. A certain selective “fine-tuning” in deficient framing conditions (like insufficient capital requirements in banking transactions) and incentives (like exorbitant bonuses focused on the short term) is now recognized and acknowledged as necessary. Otherwise interested circles will turn again to business as usual.

In this situation, economic ethics has the important task of reflecting and illuminating the normative orientation crisis underlying the systemic crisis. To that end, I'd like to describe the perspective of the St. Gallen approach of Integrative Economic Ethics (1) and then concretize this in two exemplary problems: the focus on profit-maximization thinking (2) and the focus on the financial market order (3).


The debate over the causes of the crisis long circled around the question whether individual greed and thus a moral problem or systemic false incentives and thus an amoral structural problem was the crucial factor. A separative pre-understanding of the relation of ethics and the economy underlies this somewhat absurd controversy. Either the problem is interpreted in individual ethics as a problem of personal greed or as an “ethics-free” problem of system-organization to be solved in purely socio-technical terms (Fig. 1).

Fig. 1: Separative Pre-Understanding

An ethical institutional perspective is not in sight. A purely individual problem reduction, however,sorts itself out. The resigned reference to the alleged “nature” of people in general is enough then: a person is generally greedy and not much can be done under the “practical constraints” of market competition. At most incentive structures and restrictions could be formed by means of systems engineering so that human greed would be less damaging. For example, the speculative inclination per se and the regular speculative bubbles pregnant with crisis (dotcom bubble, subprime mortgage bubble) cannot be avoided but a better management of speculative bubbles can be practiced.

The unavoidable normative points of the whole private enterprise system logic are faded out. There is no pure economic logic; economics always contains an “implicit ethic” (Brodbeck 2000). This implicit ethic is deeply rooted in intellectual- and cultural history and therefore is not easily conscious to us. The Christian creation theology backgrounds of the metaphysics of the free market and their central metaphor of the invisible hand is an example.

Integrative economic ethics (Ulrich 2008) differs from the separative pre-understanding in that it does not simply claim to bring ethics into the supposedly moral-free functioning domain of a “pure” economic “logic.” Rather it starts from the insight that normativity or an implicit ethic already underlies this logic. The integrative approach aims at illuminating the normative substance in “normal” economic thinking in a critical-hermeneutical way and opening up ethical argumentation (Fig. 2).

Fig. 2: Integrative Approach

In this approach, the ideological “thought pressures” behind the “practical constraints” of a private enterprise system developed (!) in a certain way can be uncovered and overcome. Reference to practical constraints usually occurs with a justifying intention according to the formula “private enterprise competition forces individual firms to seek the greatest possible profit – and this ultimately serves the public welfare.” The profit-maximization garnished into the public interest rhetoric is an essential factor that led to the financial crisis. Let us first consider more closely the business ethics and then the system ethics components of this problem.


Many academic economists and business administrators have not understood the distinction between profit maximization and legitimate pursuit of gain. Unfortunately business ethics and the corporate social responsibility (CSR) debate have often been content with setting business ethics postulates simply beside the business strategy – or even reducing business ethics to a “business case” – instead of understanding business ethics as a reflection on normative foundations of legitimate business and searching for an ethically integrated model of good entrepreneurial leadership.

One cannot simultaneously indulge in the so-called “profit principle” as a principle of profit maximization and take business ethics seriously. A principle represents the first or highest aspect of conduct. By explaining the maximization of a certain value orientation, e.g. profit, into a “principle,” all possible conflicting aspects are subordinated unchecked. Thus it is profit maximization itself that puts a business under the “practical constraint” of ruthless business conduct! Opening business possibilities to humane, social and ecological points of view begins in the head (like the economic upswing). Thus it is first and foremost a question of mentality.

Every basic ethical approach assumes the readiness to make one's striving for advantage dependent on its ethical legitimacy, that is its justifiability in light of the moral rights of all participants and affected persons, and on the situative responsibility for all consequences. This presupposes readiness for consideration of others and self-restraint. Two principles result from this (Ulrich 2008):

(a) Strict profit maximization is not a legitimate entrepreneurial orientation since it rejects moral commitment from the first instead of examining without reservation what deserves precedence before business success.

(b) Legitimate pursuit of gain is always a morally limited and therefore moderate pursuit of profit – in accordance with fair responsibility toward all concerned.

In other words, the pursuit of gain is the primary subject of business ethics reflection and not itself the supreme criterion of good business leadership as the harmonistic metaphysics of the free market assumes. What deserves precedence before the profit goal must always be examined unconditionally considering the huge number of conflicting values in economic life. Low profits could endanger the economic self-assertiveness of a business in competition. Conversely there can also be excessive profits that are hardly realized in fair consideration for all involved and legitimate stakeholder claims (e.g. Josef Ackermann's goal of 25% return on equity for the Deutsche Bank confirmed in the spring of 2009 just after the peak of the financial crisis). The financial branch was the pioneer of the ideological blindness of this elementary connection and the following increasingly boundless profit goals until the money-out-of-thin-air bubble produced by the maximization doctrine burst in the grandiose bang of the financial crisis.

But is limitation to moderate profit goals possible and reasonable under competitive conditions? The answer is: yes – because happily only partial conflicts and not total conflicts exist between stakeholders- and shareholders-claims. The sweeping allegation of complete incompatibility would be just as ideological as the insinuation of total harmony. Rather a practical task of harmonization is presented. This can be fulfilled and is also reasonable from a business perspective. Only the goal of strict profit or shareholder value maximization inevitably comes into conflict with consideration of all other values and principles (area B in Fig. 3).

Fig. 3: What is legitimate pursuit of gain? (Ulrich 2010)

As long as as managers support sustainable entrepreneurship on the basis of legitimate business principles, they are in a comparatively strong position since they can appeal to the necessary self-assertion on the market as a prerequisite of a balanced and fair fulfillment of the manifold stakeholder claims (area A in Fig 3). Whoever lives up to the principle of business integrity in this way gains a well-earned reputation sooner or later among all stakeholders and in the critical public and thus assures the lasting success of a business.


The second exemplary focal point of ethics reflection in the context of the financial- and economic crisis has to do with unsatisfied enlightenment in the sense of the modern “demystification of the world” (Weber 1930), namely as demystification of the pre-modern metaphysics of the free market. In the realm of the financial markets, this doctrine has led to a fatal disorientation. Since so-called “financial products” were interpreted and launched for a long while as very normal products for the private enterprise maximization of business- or bank-profits, a whole branch espoused the principle of making money directly out of money – without the tiresome way through the real economy. Approximately 95% of daily worldwide financial market transactions are only speculative financial transactions and have nothing to do with financing the real economy. Financial assets grew correspondingly. The fatal gap opened between them and the gross domestic product of most countries up to the crisis. In Germany, for instance, the financial assets in 1975 amounted to 1½ times the gross domestic product and 7 times the GDP in 2006. With “derivative” financial products of a higher order, the speculative value still hangs on the thread of some real economic value creation – until this no longer equals the profit pressure.

What is ethically valid is decisive on the financial markets more than ever today because of its special role. The deregulation of the (financial-) markets must be overcome mentally in the global “locational competition” along with the inherent necessities cultivated ideologically. The civilized order of things must be restored. The market economy is a means; the good life and fair social cooperation or life together is the goal. Let us start from the modern ideal of a well-ordered society of free and equal citizens or a civil society. The ideological model of a total market society that ruled the last decades must be replaced by a “civilized” market economy in the literal sense which is consistently bound to the principles of a fully developed civil society (Ulrich 2010). The far-reaching ethical consequences of this elementary insight can obviously not be developed here. Still a specific quintessence for the financial markets can be distilled. Tightening the incentive mechanisms of the system a little here and there is not enough. Rather a comprehensive and far-reaching new financial market order is necessary for permanently removing the causes of the crisis.

What are the ethical principles of a civilized financial market order? They could be tied to the idea that the financial sector should be understood as a public infrastructure for providing the economy and society with money, credit and sensible financial services like the energy supply-, communication- and transportation infrastructure of a country. On one side, the basic role of the financial “(blood) circulation” for a functioning national- and world-economy means it cannot be left entirely to the control of private enterprise interests. (For that reason there are state national banks). On the other side, this in no way means that all banks must be nationalized but only that the guaranteeing-responsibility for the functioning of this infrastructure in the service of the general public would be transferred to the state (for the national economy) or a supra-national financial authority (for the world economy), including the corresponding regulatory- and monitoring competence (Mastronardi/ von Cranach 2010). Certain partial tasks could be delegated to private enterprise actors in the form of democratically legitimated and controlled assignments. However the actual primacy of an unleashed financial sector interested only in private capital exploitation must be broken together with its real-political lobbying power.

Here we ultimately touch the crucial question of our economic- and social system. Capitalism increasingly gets in our way in democratic efforts to realize a civilized market economy. The capitalist market society is primarily constituted by (private) property law while a civilized market economy – the term intimates this – aims at the priority of a civil order restraining powerful private-economic interests. Cutting capital exploitation freedom down to size in a well-ordered society of free and equal citizens is vital.

At the end our way of thinking should be seen as “critical” in any sense of the word. Economic ethics pursued in an unabridged and unbiased way has to be understood as a piece of political philosophy critically reflecting the foundations of the economic order as a whole – as the critique of political economy. As such, economic ethics should raise the decisive politico-ethical orientation questions of time in the growing tension between civil society and the economic system. In other words, it should ask demandingly about the fundamental ethic of the market economy for the young 21st century and not only about (business-) ethics in the economy.


Brodbeck, K.-H. (2000): Die fragwürdigen Grundlagen der Ökonomie. Eine philosophische Kritik der modernen Wirtschaftswissenschaften. 2nd ed., Darmstadt: Wissenschaftliche Buchgesellschaft.

Mastronardi, Ph./von Cranach, M. [eds.] (2010): Lernen aus der Krise. Auf dem Weg zu einer Verfassung des Kapitalismus. Berne: Haupt.

Ulrich, P. (2008): Integrative Economic Ethics. Foundations of a Civilized Market Economy. Cambridge/New York: Cambridge University Press (German orig. 1997, 4th ed. 2008).

Ulrich, P. (2010): Zivilisierte Marktwirtschaft. Eine wirtschaftsethische Orientie­rung. Aktualisierte und erweiterte Neuausgabe, Berne: Haupt.

Weber, M. (1930): The Protestant Ethic and the Spirit of Capitalism. Transl. T. Parsons, London: Unwin Hyman (German orig. 1904/05).


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