Michael Roberts in best form. Long but truly a good read.
Michael Roberts is an Economist in the City of London and a prolific blogger
Cross-posted from Michael’s Blog
Mark Carney has a book out. It is called Value(s): Building A Better World For All. Canadian born Carney was formerly the governor of the Bank of England – the best paid governor ever at £680,000 a year plus £250,000 housing expenses. Carney recently commented that “You don’t get rich in public service.”!
Before that Carney was governor of the Bank of Canada, becoming the youngest central bank governor in the G20 nations. And before that he was 13 years at, guess where, Goldman Sachs, where he played a prominent role in advising the black majority government of South Africa on issuing international bonds and he was active for the company during the Russian debt crisis of 1998. Goldman Sachs made billions from these activities as the South African and Russian economies dived. And Carney made a fortune at Goldman Sachs. When asked recently whether he considered working for this investment bank ‘built a better world for all’, given its reputation as the ‘vampire squid of finance’, he responded “It’s an interesting question. When I worked for Goldman Sachs it wasn’t the most toxic brand in global finance, it was the best brand in world finance.” So he left just in time, it seems.
Recently he was asked what he thought was his greatest achievement at the Bank of England. His answer: “A more inclusive decision-making process with a more diverse staff.” So more diverse bankers – a great achievement. No wonder Carney has had many accolades bestowed on him by the great and good: he was named one of the 100 most influential people in the world by Time magazine in 2010, the world’s most trusted Canadian in 2011, and hailed as Britain’s most influential Catholic (by The Tablet) in 2015. And he has hinted that he might want to become the leader of the governing Canadian Liberal Party if and when Trudeau steps down.
After finishing at the BoE, he took a job with Brookfield Asset Management to advise them on environmental investment strategy and he is now to advise the UN and Conservative Johnson government on ‘financial strategy’ at the upcoming international UN Climate Change conference, Cop26, taking place in Glasgow, Scotland this November.
Now while he carries out his duties on the ‘environment’, he has written a book that outlines his philosophy on the nature of markets. As he tells us, modestly, that “I led global reforms to fix the faultlines that caused the financial crisis, worked to heal the malignant culture at the heart of financial capitalism and began to address both the fundamental challenges of the fourth industrial revolution and the existential risks from climate change.” But in doing these ground-breaking tasks to his usual brilliance he has become somewhat disillusioned with ‘markets’: “I felt the collapse in public trust in elites, globalisation and technology. And I became convinced that these challenges reflect a common crisis in values and that radical changes are required to build an economy that works for all.”
It’s not the first time that Carney has criticised ‘market’ economies and mainstream economics. He did so back in 2016 in a lecture in Liverpool. And again, in his book, he notes that, in this world of market economies, global poverty and inequality remains and most important for him, the environment is being destroyed. In his book, Carney asks why many of nature’s resources are not valued unless they can be priced. He gives the example of the Amazon rainforest only appearing as valuable when it has become a cattle farm. So price was not always a good measure of value. During the COVID crisis, Carney notes that it is the relatively low paid jobs that are high value, but they are not priced as such.
The problem, for Carney is that with markets “We are living Oscar Wilde’s aphorism – knowing the price of everything but the value of nothing – at incalculable costs to our society”. You see once we get beyond buying and selling goods and get into delivering services that people need, ‘the market’ falls short. As we move from a market economy to a market society, both value and values change. “Increasingly, the value of something, of some act or of someone is equated with their monetary value, a monetary value that is determined by the market. The logic of buying and selling no longer applies only to material goods, but increasingly governs the whole of life from the allocation of healthcare to education, public safety and environmental protection.”
Markets commodify people’s needs and that’s the problem because “Commodification, putting a good up for sale, can corrode the value of what is being priced. As the political philosopher Michael Sandel argues, “When we decide that certain goods and services can be bought and sold, we decide, at least implicitly, that it is appropriate to treat them as commodities, as instruments of profit and use.”
Turning away from the free-market libertarian philosophy of Milton Friedman and Ayn Rand, Carney appeals to moral philosophy of his hero, Adam Smith. “Putting a price on every human activity erodes certain moral and civic goods. It is a moral question how far we should take mutually advantageous exchanges for efficiency gains. Should sex be up for sale? Should there be a market in the right to have children? Why not auction the right to opt out of military service?”
You see, the apparently great proponent of ‘the invisible hand’ of free markets, Adam Smith was no such thing in all circumstances. Smith opposed monopolies and corruption in favour of free trade, but he also tempered that with a moral counterweight in support of the weak and exploited. Carney quotes Smith from his less famous book, The Theory of Moral Sentiments, where Smith said: “However selfish man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it.”
Thus Carney reaches a dilemma: price or value?; or to use Marxist terms: exchange value or use value?; profit or social need? Economics should be about increasing social well-being, but it is obsessed with market pricing instead. “This underscores the moral error of many mainstream economists, which is to treat civic and social virtues as scarce commodities, despite there being extensive evidence that public-spiritedness increases with its practice.” Carney’s answer is to restore ‘a balance’ between markets and morals; between price and value.
Carney is not the first of the great and good of the financial elite to ‘moralise’ about the failures of capitalism, once they have retired from carrying out its duties in a high priced but low value series of jobs. Another Christian and fellow central banker, Mario Draghi, now recently appointed (not elected) prime minister of Italy, and before that head of the European Central bank and, guess what, yet another senior employee of Goldman Sachs, has also professed a moral philosophy that is supposed to direct his good intentions in carrying out the strategies of finance capital.
Back in the middle of Greek debt crisis that saw the Greek people lose jobs and livelihoods in order to pay back debts to French and German banks, Draghi commented: “the crisis has dented people’s confidence in the capacity of markets to generate prosperity for all. It has strained Europe’s social model. Alongside the accumulation of staggering wealth by some, there is widespread economic hardship. Entire countries have been suffering from the consequences of misguided past actions – but also from market forces that are sometimes beyond their control.” Like Carney now, Draghi then asked the question of himself: “what is the right framework for reconciling free enterprise and individual profit motives with concerns for the common good and solidarity with the weak?” And he answered just as Carney does now: “Ultimately, we must be guided by a higher moral standard and a profound belief in creating an economic order that serves every person.”
Draghi went on to explain that: “I find myself in the company of Marx. Not Karl, but Reinhard. Cardinal Reinhard Marx has rightly insisted that “the economy is not an end in itself, but is in the service of all mankind.” Cardinal Reinhart Marx is the Archbishop of Munich who wrote a book at the depth of the Great Recession entitled “Das Kapital: A Plea for Man”, named after Karl’s work, but designed to reject Karl’s ideas. Reinhart Marx wants a market economy that is “kinder to the weak and downtrodden” instead of “heaping even more rewards on those who behave immorally.” That should appeal to Carney as well.
It seems that the appeal to ‘moral values’ over ‘market forces’ was also emitted by the former head of Goldman Sachs, Lloyd Blankfein, when Carney was there. Just after the end of the global financial crash, in 2010, Blankfein was interviewed and asked what ‘moral’ responsibility did Goldman Sachs and other investment banks have for the financial collapse that triggered the worst global economic slump (until COVID) since WW2. He replied that he thought his job as a prominent banker was to do “God’s work”.
Indeed, Blankfein continued his moral crusade in heading the bank during the multi-billion-dollar 1MDB state fund scandal, where former Malaysian prime minister Najib Razak and his family corruptly siphoned off billions – it seems with the connivance of Goldman Sachs. God’s work in this case appears to be having Goldmans arranging bond issues worth $6.5 billion for 1MDB, with large amounts of state funds ($2.7bn) misappropriated in the process.
What is Carney’s practical solution to the contradiction between price and value created by the market? It is the classic mainstream one of trying to account for social needs in pricing by pressing and persuading capitalist enterprises to do things ethically and for ‘a better world for all’. In working for his latest asset management company he aims to get investors to make ethical and ‘green ‘ investments.
But just as he delivered his Reith lecture on hiss book on ‘values’, he had to retract an earlier claim that the $600bn Brookfield Asset Management portfolio he was working on was carbon neutral. He based his claim on the fact that Brookfield has a large renewable energy portfolio and “all the avoided emissions that come with that”. The claim was criticized as accounting tricks as avoided emissions do not counteract the emissions from investments in coal and other fossil fuels responsible for Brookfield’s carbon footprint of about 5,200 metric tons of carbon dioxide.
And only this week, the Financial Times of all media, has pointed out that such ethical investments usually fail because companies have no intention of reducing carbon emission production. “Capitalism’s restless innovation when it comes to electric cars or plant-based food has helped consumers to enjoy the same standard of goods, or something close, while cutting their carbon footprint. But canny marketers have also used environmentalism to relabel many, at best, neutral products as world-saving. Environmentally friendly finance is shaping up in a similar vein: investors will find that new product badging cannot replace the hard work of scrutinising exactly what is being offered. Despite the promises, it is never easy being green.”
Just as Draghi did not quote Karl Marx but Reinhart Marx in his argument for the ‘moral’ control of market forces, so Carney avoids Karl and instead relies on Adam Smith and Oscar Wilde. But he does not mention that Wilde, the great playwright, poet and literary genius, was a committed socialist. The Wilde aphorism is clearly a socialist not a moral message.
Wilde’s essay, The Soul of Man under Socialism, expressed exactly the opposite of Carney’s conclusions. Yes, capitalism commodifies social needs (use values) into value and profit for capital. That leads to poverty, inequality, crises, financial crashes, climate change, pandemics and environmental destruction. But the answer for Wilde was not to get capitalism to temper its destructive nature with moral values. As Wilde says: “It is immoral to use private property in order to alleviate the horrible evils that result from the institution of private property. It is both immoral and unfair.”
Wilde goes on: “Under Socialism all this will, of course, be altered. There will be no people living in fetid dens and fetid rags, and bringing up unhealthy, hunger pinched children in the midst of impossible and absolutely repulsive surroundings. The security of society will not depend, as it does now, on the state of the weather. If a frost comes we shall not have a hundred thousand men out of work, tramping about the streets in a state of disgusting misery, or whining to their neighbours for alms, or crowding round the doors of loathsome shelters to try and secure a hunch of bread and a night’s unclean lodging. Each member of the society will share in the general prosperity and happiness of the society, and if a frost comes no one will practically be anything the worse.”
Wilde concludes: “Socialism, Communism, or whatever one chooses to call it, by converting private property into public wealth, and substituting co-operation for competition, will restore society to its proper condition of a thoroughly healthy organism, and insure the material wellbeing of each member of the community. It will, in fact, give Life its proper basis and its proper environment.”
It’s not really value versus price, but social need versus private profit.