13th & 14th November 2013Faith and economy and a perspective on the economic crisis

By Johan GraaflandProfessor in Economics, Business and EthicsTilburg University

IntroductionGlobalization and impotenceComplexityChurch must speak

No concrete policy recommendation But broader analysis in relation to debate on church and society

Contents

Backgrounds of economic crisisAt the micro level

Risky investments by banksIntransparent and complex financial productsInaccurate ratings by rating agenciesIncentives to risk taking by bonus rewarding systems

At the market levelDeregulation inspired by neo-liberal economic thought (Friedman, Hayek)

Philosophical backgroundObjectivism of Ayn Rand

Rational self-interest is the cornerstone of societyAltruism is a vice

Never live for another person and never ask someone to live for youRedistributive policies are unjustAnti Christian philosophyInspired Alan Greenspan

Theological background of Adam SmithNatural theology

Invisible handWell understood self-interestBut embedded in moral framework

Virtues (prudence, justice, benevolence)Smith insufficiently weights potential destructive forces of self interest

Christian valuesCommon good

Financial markets crowd out the social conditions that make people prosper

Bonus culture has diminished motivation to serve the clients

JusticeCosts of risky investments were shifted to society (no reciprocity)

SolidarityParticularly low income groups are hurt

Humility Attitude of admitting errors, openness to criticism and willingness

to change. Then one can learn from crisis Related to simplicity; serves integrity and helps to focus on what is

really of value. In modern economy complex financial products and economic systems have become autonomous and threaten life. Making things simpler gives more control of economic system.

Grace Greed was not only present in financial sector The crisis is not only caused by a lack of individual responsibility,

but also by systemic errors and lack of checks and balances. This indicates collective guilt.

Still, there is also personal responsibility. Experience of God’s love creates room for insight into own failures and motivates to change

Concluding remarkCall for reflection on our own responsibility in our economic choices and in economic institutions.

What is the purpose of banking? What do we aim at? What will make us happy?

Necessary in all our roles Macro: Government and political parties Meso: branch organizations Organizational: corporate governance Individual:

As manager As household (responsible consumption, saving and investment)