Andy Blunden. August 2008

Ethics and why the Financial Crisis is insoluble

“The Radical Critique of Liberalism. in memory of a vision.” The first of 2 volumes, by Toula Nicolacopoulos, published by Melbourne 2008. $35 paperback.

The financial crisis which began in the US in October 2008 is at bottom an ethical crisis and, if Toula Nicolacopoulos is right, it will take a lot more than triple bottom lines to fix it.

Conventional wisdom would suggest that understanding and foreseeing the ultimate fate of this crisis is the task of economic science, but, at least recently, when the system began to fail, the logic of economics was overridden by state intervention. Different governments responded differently in 2008, not because of sectional interests, but because of legitimate differences about what was the right thing to do. Nor can the origins of the crisis be described in purely economic terms; they lie in ethical problems which are matters of dispute within the capitalist elite itself.

Although religious and other traditional ethical concepts rear their heads from time to time, predominantly, and overwhelmingly in economic life, the ethics of liberalism holds sway in the ruling capitalist elite. By liberalism, I mean the ethical principles dating from Hobbes, Locke, John Stuart Mill, and espoused nowadays by people like John Rawls and Ronald Dworkin, as well as Milton Friedman and Friedrich Hayek, that is to say, supporters of laissez faire in both economics and culture.

For two hundred years, philosophers, judges and law-makers have debated the principles of liberalism. So when the world was suddenly teetering on the edge of an economic collapse it was not at all obvious to world leaders what was the right thing to do and whether anyone had done anything wrong in the first place, and if so who. Using the writings of the foremost contemporary liberal philosophers, Toula Nicolacopoulos has traced the logic of liberalism from inside so to speak, not by running a counter-argument or even by playing one liberal philosopher off against another, but taking each version of liberalism at a time, and tracing its underlying logic to see if it stands up in its own terms.

The crucial claim made by Nicolacopoulos is that all varieties of liberalism rely on being able to draw a sharp line between matters which are public (and can therefore be regulated by law) and matters that are private (which, according to liberal philosophy, the state must leave alone). This position all liberals share in common, and each of the philosophers she examines handles this division into public or private in a different way. According to Nicolacopoulos, this public-private dichotomy is the most basic, foundational ethical principle underlying modern capitalism.

For example, when one person buys something from another the price is a private matter between the two parties, and should not be determined by the state. What consenting adults do in their own bedroom is considered private and not a matter for the law, but what an adult does with a child is regarded as a matter of public interest. Similarly, in most western nations, religion is a private matter, so political leaders can practice whatever religion they like, so long as the separation between church and state is maintained. But the separation of public and private is problematic. If an insurance company goes bankrupt, does the state have a right and/or duty to bail it out? People who put their money into the company did so at their own risk, after all. . If someone takes out a loan that they cannot afford to repay, isn’t that a private matter? Can the person who sold them the loan be accused of any wrongdoing? Does the state have any right to regulate the finance industry? These are ethical questions, and if loansharks are to be sent to prison, if people who have lost their money in dodgy bonds are denied legal recourse to compensation, or when companies taken into public ownership, then these are not really economic questions, but are ethical questions.

Nicolacopoulos does not propose any alternative to the liberal paradigm. What she does do is to follow to the end the way each theorist has constructed the public-private distinction. In each case, she finds that the theorist has failed to avoid falling into contradiction. John Rawls does better than others, but even Rawls cannot sustain the public-private dichotomy without ultimately coming into contradiction with himself. This is not a trivial matter. The US, for example, is a highly litigious society and nothing can pass in that country without, at some point, being tested in the courts. Whatever one makes of the corruption, prejudice and even the cruelty of American capitalism, in the long run, actions have to be justified by rational argument in a court of law. Thus, and inevitably, the deep-seated contradictions that Nicolacopoulos has unearthed come to light and demand resolution. Nicolacopoulos’s book is not light reading, but it sheds an original and arguably very important light on the unfolding crisis of capitalism in a moment when the critique of neoliberal thinking is very much needed.