“The
complexity and gravity of the present economic situation rightly cause us
concern, but we must adopt a realistic attitude as we take up with confidence
and hope the new responsibilities to which we are called by the prospect of a
world in need of profound cultural renewal, a world that needs to rediscover
fundamental values on which to build a better future. The current crisis
obliges us to re-plan our journey, to set ourselves new rules and to discover
new forms of commitment, to build on positive experiences and to reject
negative ones. The crisis thus becomes an opportunity for discernment, in which
to shape a new vision for the future. In this spirit, with confidence rather
than resignation, it is appropriate to address the difficulties of the present
time.”
Pope Benedict XVI, Charity in Truth
"Let’s
not pretend that things will change if we keep doing the same things. A crisis
can be a real blessing to any person, to any nation. For all crises bring
progress. Creativity is born from anguish, just like the day is born from the
dark night. It’s in crisis that invention is born, as well as discoveries, and
major strategies. Whoever overcomes crisis, overcomes himself, without getting
overcome. Whoever blames his failure on a crisis neglects his own talent, and
is more concerned with problems than with solutions. There’s no challenge
without a crisis. Without challenges, life becomes a routine, a slow agony.
There’s no merit without crisis. It’s in the crisis that we can show the very best
in us. Without a crisis, any wind becomes a tender touch. To speak about a
crisis is to promote it. Not to speak about it is to exalt conformism. Let us
work hard instead. Let us stop, once and for all, the menacing crisis that
represents the tragedy of not being willing to overcome it. “
Albert Einstein
The crisis and the questions it raises
The
United States has been facing one of its most severe economic recessions in
eighty years. The financial markets experienced their worst decline since the
Great Depression. Very quickly, the crisis moved from Wall Street to Main
Street because, nowadays, what affects finance, affects the entire economy. The
job market is
still
suffering an unemployment rate not seen in decades. All the lessons learned
from the Great Depression
in
the 1930s, all the advances in macro-economic policy since then, all the
financial regulations that were
instituted,
and all the financial innovations to hedge many of those risks, were not able
to spare us from the
worst
crisis in a generation. And, as in the 1930s, this is not just an American
problem: it is a worldwide problem.
Now
the panic has subsided, stock markets have recovered some of their losses, and
the quality of life has not
been
as severely challenged as it was in the ‘30s. Another Great Depression did not
occur, but the very fact
that
it might have occurred, is shocking. How and why did this crisis happen? What
lies behind it? What
might
be the way forward? These questions are still very much alive and this exhibit
intends to offer starting
points
for discussion.
How did it happen? A short chronology
July
31, 2007: Bear Sterns, one of the leading financial institutions in the U.S.,
liquidates two hedge funds that invested in various types of mortgage-backed
securities.
August
6, 2007: American Home Mortgage Investment Corporation files for bankruptcy
protection. The crisis extends from the U.S. to the world, because of the
global market of the securitized subprime mortgages.
March
24, 2008: Bear Sterns, on the verge of bankruptcy, is purchased by JP Morgan
thanks to an extraordinary term financing provided by the Federal Reserve Bank
of New York.
September
7, 2008: The U.S. Federal Government takes control of Fanny Mae and Freddie Mac
to avoid their collapse. September 15, 2008: Lehman Brothers, one of the five
most important merchant banks in the world, goes bankrupt. September 16, 2008:
The U.S. Government, through the Federal Reserve Bank of New York, rescues AIG
(the biggest U.S. insurance company) from bankruptcy by lending $85 billion.
September
26, 2008: After the U.S. Congress refuses to approve the Treasury Department’s
plan to face the financial crisis, stock exchanges around the world go into
panic and the liquidity crisis quickly hits Europe and Asia.
September
30, 2008: The entire financial and credit system in the world is paralyzed. The
central banks of the most important countries in the world put enormous amounts
of liquidity into the markets.
October
14, 2008: TARP (Troubled Assets Relief Program) is approved: the U.S.
Government makes available to the banking system $700 billion to eliminate the
“toxic” assets.
December
11, 2008: 4.4 million people are without jobs in the U.S., the highest number
since 1982.
February
17, 2009: The “American Recovery and Reinvestment Act of 2009” (also known as
the “Tax Stimulus Program”) is approved with tax cuts and other incentives for
$820 billion.
March
19, 2009: The U.S. Treasury Department announces an “Auto Supplier Support
Program” that will provide $5 billion in financing to the automotive industry.
June
2010: The Greek crisis explodes. Other European countries, like Portugal and
Ireland, are in serious financial trouble.
January
2011: Although the crisis is technically over, the unemployment rate in the
U.S. remains very high (9.8%) and the future full of uncertainties.
Why did it happen? The dynamic of the crisis
Even though there are scores of differing
analyses, there is a general consensus among the experts that the crisis was
unleashed by the severe decrease in value of the real estate market. This
decrease in value caused the conditions for a “perfect storm” for the economy
with the exponential escalation of the following effects:
Inability
to refinance the terms of mortgages and above all the very popular (now
infamous) subprime mortgages (i.e., mortgages given to people with insufficient
funds for down payments, poor or no credit history, and/or low incomes). The
increase in value of homes was the only possibility for borrowers to refinance
the terms of mortgages (and decrease the otherwise progressively higher
mortgage payments) and the main guarantee for lenders. Increase in defaults of
mortgage payments and foreclosures, and consequent losses for the financial
institutions lending the funds. Drastic depreciation of trillions of dollars of
“mortgage-backed securities” (i.e., securities that represent slices of
mortgages) owned by the leading financial institutions all around the world (the
so-called “toxic assets”). The impracticality of establishing values for the
illiquid mortgage-backed securities owned by the banks and, therefore, the
impossibility of ascribing value to the potential losses in their financial
statements. Generalized loss of trust in the capacity of borrowers (banks,
businesses, and individuals, no matter how solid they may have appeared) to
repay their debts and, as a consequence, dramatic decrease in investments.
Slowing down and sometime-paralysis of the credit mechanism for businesses and
between financial institutions, with consequent economic down-turn and
unemployment increases.
LESSONS
HIDDEN WITHIN THE CRISIS
No scapegoats but a shared responsibility
There
is no shortage of explanations for the crisis. All the possible causes and
mistakes have been scrutinized by a multitude of experts. But it would be
incorrect to point the finger at a single category of people or institutions.
There are no scapegoats because everyone shares the responsibility of ignoring
the suggestions given by reality: the consumers seeking to live way above their
financial means; the financial
companies
and the credit rating agencies earning easy money; the government, the public
institutions, and the regulators facilitating this process. But, at a certain
point, reality struck back and now it invites us to learn certain lessons. What
are they?
Economic models based on the “homo oeconomicus,”
or other
axiomatic approaches, are misleading
As
revealed in many financial crises in the last decades, including the most
recent one, the concept of the “homo oeconomicus” is inadequate and the
economic models based on this concept are misleading. This concept is based on
the widespread idea (that is now changing among many economists) that, when
acting in the economic sphere, the person is intrinsically egotistical (first
unreasonable concept), always behaves in a rational way (second unreasonable
concept), and looks exclusively for profit maximization (third
unreasonable concept). On the basis of these unreasonable premises, a theory
developed that mere individual interest would be sufficient to build a
collective economic order: an “invisible hand,” the market [Adam Smith/Milton Friedman] would magically
create a balanced system. Reality, however, has shown that this axiomatic approach,
especially when human freedom is at play as it is in economics, does not work
and causes large-scale damage. As many economists are attesting, the creation
of an economic model has to be based on the observation of reality
rather
than on axioms. Furthermore, its application cannot be left in the hands of a
machine but always requires a critical eye, a good dose of realism, and certain
caution.
Pure individualism, short-term profit, and
competition à la Darwin, are inadequate
The
exaltation of an abstract idea of individualism. “The conviction that man is
self-sufficient and can successfully eliminate the evil present in history by
his own action alone has led him to confuse happiness and salvation with
immanent forms of material prosperity and social action. Then, the conviction
that the
economy must be autonomous, that it must be shielded from “influences”
of a moral character, has led man to abuse the economic process in a thoroughly
destructive way”
[all emphasis mine]. Pope Benedict XVI, Charity in Truth
[all emphasis mine]. Pope Benedict XVI, Charity in Truth
The
exaltation of short-term profit as the only goal of a business: The
pursuit of short-term profit tends to force reality (in order to
obtain results at all costs), and facilitates unrealistic and unethical
behaviors in the workplace. The
unreasonable idea that the person looks exclusively for profit
maximization is also at the origin of several
other misconceptions:
B
The
exaltation of an abstract, Darwinian, idea of competition. According to this idea,
the other businesses are seen as enemies to eliminate or to exploit. The
increasing need to pool resources, strategies, and research and development
activities, even with competitors, to better face the challenges of a global
market,
is often ignored.
C
A
Technology is not sufficient
“Technological
development can give rise to the idea that technology is self-sufficient
when too much attention is given to the ‘how’ questions, and not enough to the many
‘why’ questions underlying human activity. True development does not consist
primarily in ‘doing.’ The key to development is a mind capable of thinking in
technological terms and grasping the fully human meaning of human activities,
within the context of the holistic meaning of the individual's being. Even when
we work through satellites or through remote electronic impulses, our actions
always remain human, an expression of our responsible freedom. Technology is
highly attractive because it draws us out of our physical limitations and
broadens our horizon. But human
freedom is authentic only when it responds to the fascination of technology
with decisions that are the fruit of moral responsibility. Hence the pressing
need for formation in an ethically responsible use of technology. Moving beyond
the fascination that technology exerts, we must reappropriate the true meaning
of freedom, which is not intoxication with total autonomy, but a response to
the call of being, beginning with our own personal being.” Pope Benedict XVI, Charity in Truth
Finance is not alchemy
Finance
has been gradually considered more and more as a generator of prosperity
without being related to any value and to real economy. Financial activities,
at the service of entrepreneurial spirit, have become an end in themselves and
finance, with its increasingly sophisticated and intricate products, began to
live in a parallel, self-referential, universe. In the illusion of generating
unlimited wealth, the players acting in this universe ignored the most obvious
signals to their common sense to try to overcome limitations imposed by
reality.
WHAT
CAN MOVE US BEYOND THE CRISIS
Economic growth: the only way out
No
short-cuts, financial tricks, or magic solutions (from the public or private
sector) will solve the economic problems we are still facing. Only real and
sustainable economic growth with its longer-term drivers, i.e., labor force and
productivity, will move us beyond the crisis. However, no mix of government
policy and private sector incentives can replace a deeper cultural question
about the relationship between human desire and work. And no financial
engineering, labor market policies, and other government regulations—while
certainly having an impact—can substitute the role of education in underlying
longer term productivity growth. Human beings are not ants, and economic
construction is not a mechanical process, but a truly human
event which involves reason and freedom at every step. At the center of
economic action lies a free, relational subject moved by the desire to
transform reality to reach his or her own fulfillment.
The need to reassess the foundations of work,
business, and Finance
As
Pope Benedict XVI suggests in Charity in Truth:
“The current crisis obliges us to re-plan our journey … The crisis thus becomes
an opportunity for discernment, in which to shape a new vision for the future.”
A new vision in economy implies the reassessment of the constitutive factors of
its growth: the person and his/her own desire; work and its driving forces;
businesses and their organizations; finance and its goals.
Only after such a reassessment can new models and a new set of rules and
regulations be established, if they are necessary.
Desire: the essence of human nature and the engine
that moves everything
Reassessing
what can move us beyond the crisis is the same as reassessing what moves us at
the start of every day. In order to begin anew, we can only start from what
drives a person to face life and work. There are many theories about what
motivates people to work but, at their roots, lies a compelling force: the
desire to achieve happiness and to make it complete and lasting. This desire
for fullness of life is the essence of human nature. Not only does it set us in
motion to search for the infinite and ultimate meaning of life, but it also
pushes us to work, in order to transform reality to make it more suited to the
ultimate demands inscribed in our nature. Contrary to certain socio-economic
literature, the attitude toward work is directly correlated
to the extent with which one lives his/her deep nature, which is desire for
justice, truth, and beauty.
The need for support vs. the mystique of the
self-made man
In
as much as desire is the essence of human nature, in the same way,
existentially, it is betrayed by censuring, denying, suffocating, or reducing
the depth and breadth of the longing for fulfillment. Such betrayal, which
starts in ourselves, is also favored by everything outside of us that tends to
systematically tame one’s desires, to the point of creating—as Luigi Giussani
stated—“bewilderment in young people and cynicism in adults.” The person, left
alone, is not able to live up to the stature of his/her own humanity. This is
why the image of the self-made man as the ideal entrepreneur is, in real life,
utopian. How, instead, can this stature be continually rescued? Once again, the
answer comes from human nature. Pope Benedict XVI in Charity in Truth defines the person as a relational being, made in the
image of the Trinity: “The development of peoples depends mostly upon the
recognition of being one family that collaborates in true communion and is
constituted by subjects who don’t simply live one next to the other. … The
human creature, since it has a spiritual nature, fulfills itself in
interpersonal relationships. The more the person lives them authentically, the
more the person matures.”
The
notion of human nature as desire for fulfillment is the foundation for a new
and truer concept of work. Work is the “connection between the action, be it
extraordinary or banal, and the ultimate fulfillment of life, its ultimate
destination, its ultimate meaning” (Julián Carrón). [Blogger: Work is the occasion of self-mastery to be self-gift which is one more small step to becoming "another Christ"]. This connection, and the
continuous desire to discover it, is what gives freedom, dignity, balance, true
value, sense of accomplishment, gusto, and satisfaction to our work, more than
any other job condition or level of compensation. The awareness of this
connection is called, in Christian terms, offering: the recognition that one’s
actions belong to a greater design that has a meaning. Any theory about work
that forgets the essence of our humanity as longing for an everlasting
happiness and reduces freedom to mechanics is misleading and destined to be
unsuccessful.
A new concept of work as the connection between
one’s actions and the ultimate fulfillment
The
concept of human nature as desire and of work as a connection to a greater
design is the foundation of a more realistic concept of business. A business,
regardless of size, is a set of individuals and resources whose primary goal is
not merely to pursue profit, but also to create jobs and to provide
top-quality goods and services. Actually, profit, far from becoming a
goal in itself, becomes the test of how well the business is pursuing its other
goals (which, from a personal and social point of view, are more relevant than
profit). In this way, the business becomes a place where the
entrepreneurial spirit is constantly regenerated by
encouraging the creativity of the employees and the use of all the resources at
hand. Sharing, dialoguing, and comparing its own endeavors with others
businesses is not regarded with suspicion. The risk-taking activity is not
disjointed by the sense of responsibility toward the people who participate in
the enterprise. No factors both within and outside the business (employees,
clients, consumers, the environment, and society as a whole) are overlooked.
Only a business conceived in this way can live up to the ideals of what today
is called “corporate responsibility.”
A new concept of business and corporate
responsibility
A
notable consequence of this concept of business is that the employee is no
longer considered
solely as an instrument to increase profit. Studies and common
experience show
that personal motivation and love for the job are the most important elements for
positive work performances. However, the employee cannot be deliberately
manipulated as
an instrument to this end - only a relationship of “partnership” is,
ultimately, appropriate. A person who is free, mature, and reliable in everyday
life is the best thing that can happen to a business.
The employer/employee
relationship as partnership
What
is true for the individual is true for businesses. A business, left alone, is
not able to live up to its mission and needs support. For this reason, free
associations among businesses, networks of cooperation and mutual help, pooling
of tools and resources, sharing of research and development activities, are
positive factors which contribute to the creation of a flourishing economic
environment. Any theory that promotes, instead, the idea of the business world
as a jungle where each one is on his/her own and everybody else is a potential
enemy is as damaging as it is depressing.
The relevance of cooperation among businesses
Real
economic growth, centered on the person as desire, work as connected to a
greater design, and business as not merely profit-seeking, implies the
enhancement of human capital, organizational flexibility (with direct,
frequent, and informal interpersonal exchanges between businesses), production flexibility
(which offers personalized products and quickly adapts supply to demand), close
connection with the local socio-economic environment (which implies being in
close contact with customers), and investment in research and development to
guarantee the stability of the business through time.
Some implications of a new concept of work and
business
The
financial sector plays an essential role in the development of economic growth.
The current crisis is not a problem of too much or too little finance. The
financial sector should not ignore its ultimate purpose and point of reference,
which is service to the real economy. And those who work in the financial
sector, like everybody else, need to look for meaning in their jobs that goes
beyond a limited measure of success to include the entire reality of work and
what it reveals about themselves and their destiny.
Finance at the service of real economy - A new vision for the future and the need for
education
No
crisis is able to halt the personal and social journey of life, because no
difficulty is stronger than the unquenchable longing that marks our human
questions and pushes us to start again, every morning, every time. By
re-echoing the sentiments in our own hearts, the Pope has invited us to shape a
new vision for the future in order to move beyond the crisis. What is needed to
accept this invitation is an education to become familiar with our own
humanity. And by education we mean an introduction to the reality of what
constitutes the core of our own self, led by a teacher and supported by
examples. This education to live our own human questions with seriousness is
much more comprehensive and relevant to the creation of entrepreneurial spirit,
job opportunities, and wealth, than schooling, ethical principles applied to
the economy, or even profit itself.
“Desire
is like the spark with which an engine gets started. Every human action is born
from this phenomenon, from this dynamism which constitutes man. It’s desire
that turns on ‘man’s engine.’ As a consequence, he starts looking for bread and
water, for work, for a woman; he looks for a more comfortable armchair and a
better house. He starts getting interested in the fact that some people have
more than others, he looks at the fact that some people are treated in a
certain way and he’s not, precisely because of the increase of these stimuli he
has within himself and that the Bible calls heart.”
[all emphasis in the above is mine]
[all emphasis in the above is mine]
Msgr. Luigi Giussani
