Doing good by doing well: Re-defining moral capitalism

Professor Kenneth Costa
Mercers' School Memorial Professor of Commerce

            1. Introduction
            2. The capitalist crisis: What's gone wrong?
            3. Capitalism - Theory and practice. The ethical foundations of the market
            4. The recovery
                4.1 In need of a principle - 'The Golden Rule?
                4.2 In need of a worldview - 'The Common Good?
                4.3 Practical applications - Four steps
            5. Conclusion: Doing good by doing well

1. Introduction

Good evening ladies and gentlemen: I am delighted to be here to give the second in my series of lectures on re-shaping commerce in the post-crisis world.

The title of tonight's lecture is Doing good by doing well: Redefining moral capitalism.

Since the economic crisis began, many commentators have predictably argued that capitalism is dead.

Karl Marx has climbed up the bestseller list. The paparazzi even caught Nicolas Sarkozy on a beach, semi-clad, with a blanched copy of Das Kapital.

'Much of Marx's thinking', declared Germany's former Finance Minister, Peer Steinbrück, 'is really not so bad'.

Even the Pope has praised Marx's 'great analytical skill'.

And our own former Cardinal Archbishop of Westminster, Cormac Murphy-O'Connor, announced dramatically at a fund-raising dinner at Claridges that the credit crisis had killed capitalism. 'In 1989, with the collapse of the Berlin Wall', he said, 'communism had died; in 2008, now it is capitalism that has died.'

There is no question that recent events in the economy have challenged the health and sustainability of the capitalist system. We have seen capitalism humbled and have reached the near meltdown of the system. But even though capitalism might be on life-support, it is not dead.

And therefore the challenge for economists, politicians and all of us is to recover the moral and human spirit of the capitalist system. I will explain what I mean by this in a moment, but let us acknowledge, first of all, that the challenge is widely recognised.

In his encyclical Caritas In Veritate, published in July, Pope Benedict XVI called for financiers to 'rediscover the genuinely ethical foundation of their activity.'

Speaking just before March's G20 meeting in London, Gordon Brown called on leaders to help develop a 'shared moral sense' that will govern markets and the economy in the wake of the global financial crisis.

And David Cameron too has called for 'Capitalism with a conscience.' In his speech to world leaders, financiers and corporate directors at the World Economic Forum, he said: '... it is time to place the market within a moral framework.'

Tonight I want to say something about what recovering this 'ethical foundation', 'shared moral sense' and 'moral framework' means and what it will require of us.

The major responses to the economic crisis to date have in my view failed to recognise the scale and nature of what's gone wrong. We have re-capitalised, re-equitised and re-structured the financial system, but we have failed to address its single greatest deficiency - the erosion of the moral and human spirit. So, tonight I will aim to redress that imbalance and consider the 're-moralisation' of the economy.

Now, let me be absolutely clear from the start about what I do notmean.  

In talking about the moral spirit, I do not mean a narrowly angular codified set of do's and don'ts. It is not simply about regulation. That's the whole point.

Of course we need laws and rules to restrain unacceptable behaviour.  Sadly, human beings will never act in a way that makes laws unnecessary. But that is not to say that the only way forward is to create ever more laws. A box ticked is not a duty done.

The moral spirit is about breaking free from the ethical straightjacket that regards ticking boxes as a moral panacea. It is about conscience making a comeback. It is about reuniting the economic with the moral and indeed the spiritual dimensions of being human.

So, tonight, let me address three overarching themes: 1) the cause of the financial crisis, 2) the moral foundations of the free-market, and, 3), the road to recovery. I will argue that the principle cause of the financial crisis has been a moral and human issue, not a structural one. Creating sustainable profit is a moral imperative. The first duty of corporate and social responsibility is to be profitable. However, there are crucially important invisible and ever-present partners - our shared humanity - in the markets in which we operate. Decisions cannot be taken in isolation. There are systemic issues at stake affecting the lives of the communities in which we operate.

2. The crisis - What's gone wrong?

2008 is not the first time capitalism has fallen into disrepute. We need only mention the Italian banking crisis of the 14th century, the Dutch tulip mania of the seventeenth century, the Great Depression of the 1930s and 1940s, the dot com bubble at the turn of the Millennium. 'At their worst', Stephen Green, HSBC Chairman, reminds us - '[markets] are unjust, abusive, destructive and crisis-prone.'

There is no doubt that capitalism has overstretched itself in the way Green describes. The immediate reasons are clear:

    * the pricing of assets all but ignored the risks inherent in them;
    * greed overtook performance;
    * individuals went before communities;
    * markets became servants not masters;
    * the short-term usurped the long-term, and the lines between debt and equity became blurred.

Banks created credit and products but were not prepared to share the moral consequences of their actions. The culture of 'pass the parcel' meant that blame was shifted, with some even trading against the interests of the firm if that's what made them money.

Credit was created at times ex nihilo, out of nothing,with nothing to back it up. These institutions assumed that they could be creators of enormous amounts of credit without bearing the responsibility for their financial creations. The credit function was given to the syndicate desk, and the financial creators thought they could in this way syndicate their moral obligations.

Religious leaders have offered valuable insights on how this happened. The Archbishop of Canterbury has reminded us of something we too often forget - that markets are about people. As he put it in a Spectator article last year, 'Once we get used to speaking about any of them as if they had a life independent of actual human practices and relations, we fall into any number of destructive errors.'

And back in 1998 Jonathan Sacks, the Chief Rabbi, warned: 'The market, in my view, has already gone too far: not indeed as an economic system, but as a cast of thought governing relationships and the image we have of ourselves? The idea that human happiness can be exhaustively accounted for in terms of things we can buy, exchange and replace, is one of the great corrosive acids which eats away the girders on which societies rest.'  GDP, on this view, may not give us a truly representative picture of a people's standard of living.

And politicians have been thinking along similar lines. In a speech to the Google Zeitgeist Europe conference in May 2006, David Cameron said: 'It's time we admitted that there's more to life than money, and it's time we focused not just on GDP, but on GWB - General Well-Being.'

The financial crisis has exposed a major weakness in our economic system. It was not principally a financial one, but a human one. We have operated with an atomised, reductionist view of what it is to be human, and how human beings act.

In recent times, we created our market economy according to a rationalist and utilitarian anthropology. Indeed, the approach we adopted reflected the sort of world-view described by Charles Dickens in his classic Hard Times. In the novel, two radically different visions of human flourishing are presented to us. The first approach is a utilitarian one, a scientific model of political economy. It is championed by one Thomas Gradgrind, a hardware manufacturer, founder of a model school and later MP for Coketown. The second vision is embodied by the people of Coketown who are prone to a 'strange and unsavoury exuberance of imagination', and prefer reading novels to government statistics. 'In this life,' Gradgrind insists, 'we want nothing but Facts, sir; nothing but facts.'

Facts, numerics, research, quantitative analysis, indices and indicators. These were our tools. Not values or wisdom. The economic system assumed that human beings walked through the doors of their workplaces, leaving behind all that makes them human. No account was made for the fact that markets are not worked by machine but by human beings who are emotional, ethical and spiritual creatures, not simply economic entities.

And so, credit grew without restraint, greed fuelled decisions, egos were pandered to and choices were made on the basis of satisfying basic animal instincts.

The dehumanisation of the market resulted in the idolisation of the market. We identified ourselves with the market. Instead of seeing the market as a means of empowerment, it became the apotheosis of our lives. We became one with it in being. 'Let the market decide' was the new morality. It was an ontological crisis for the market. We dehumanised the market and, in turn, it dehumanised us.

The approach we adopted encouraged us to be deaf to the invisible partners in our economic transactions. The invisible partner is the collective, ever-present humanity, the society in which we operate. In a globalised context, our invisible partners could be on the other side of the world. The invisible partners are those who are affected - for better or worse - by the decisions we take, either as traders or consumers. They are part of the human community. Their interests should be ever present in the board rooms of our corporations and in the day to day decisions which we take.

In his fascinating book, The Ascent of Money, Niall Ferguson claims that in 2006 the entire output of the world was $47 trillion, whereas the total value of world stock markets was 10% larger at $51 trillion. Planet Finance, he concludes, began to dwarf Planet Earth.

Screens. Speed. Separation. These three S's colluded to produce disaster. The dehumanisation of the market, the replacement of the human with a screen, encouraged decisions to be taken at speed, without due consideration of the consequences a course of action might produce. The separation between actors, between traders and others, ensured that we were deaf to the voice of the invisible partner. 

In short, basic instincts prevailed. Now 'financial man' faces regulatory contracts as the only way forward. But let me repeat: if we believe that ever increasing regulation on its own is the answer, we are failing to understand the true nature of the crisis confronting us.

Regulation, however comprehensive and well-intentioned, will not in itself prevent another crisis. What might? It could be the recognition that we, as human beings, are extraordinarily complex. We comprise financial acumen (we want to do well), spiritual desires (whether God-governed or not, we long for happiness) and a moral spirit (which leaves us with the realisation that doing well comes from doing right).

It is the neglect of these last two aspects of our common humanity which has tipped the crisis. If there had been an awakened sense of these parts of humanity, we would at least have been able to question the route map of the triumphant capitalist march over the past decade.

Capitalism went wrong because it slipped its moral moorings. And here is the issue.

We need to embrace a new vision before we can begin to evaluate individual economic practices. A new moral spirit would seek to secure a consensus amongst practitioners regarding where we are headed, the journey's end.

So capitalism, I believe, is now at a cross roads. We have a unprecedented opportunity before us to embrace a new moral spirit and restore a sense of moral purpose.

3. Capitalism - Theory and Practice: Is capitalism inherently immoral?

But talk of moral moorings begs a more disturbing question: is 'moral capitalism' an oxymoron?

David Charters, in a recent edition of The Financial News, writes the following: 'Adding a total dimension is a complete red herring. Markets and market practitioners tend to be morally neutral. With the exception of funds, which market themselves as ethical, most people really don't care where they make their money as long as they stay on the right side of the law. And that is as it should be. When they go home in the evening they might do a number of socially useful things from simply spending some of their money, or giving it away to good causes but that is up to them. In the evening they might do a number of socially useful things from simply spending some of their money, or giving it away to good causes but that is up to them.'

But this is not right. It's not just how we earn our money, but what we do with it, which is of the utmost importance. The economic crisis has quite rightly led to a vigorous debate about the consequences of the market economy, and, therefore, its limitations. It is clear to me that we cannot leave the debate with a defence of the status quo.

Is capitalism fundamentally amoral or even immoral? This debate has a long history and we need to understand this history if we are to understand the present. In the 1930s, the Austrian economist Joseph Schumpeter referred to the 'perennial gale of creative destruction' in economies. The rise and fall of new companies, the coming and going of entrepreneurs, the ascendancy and slump of various markets - all this was, in his view, part and parcel of the capitalist system. But the rapidity of this change can cause significant distress and great pain. Turbulent markets can have brutal consequences, which can be fatal when all sections of the market are integrally connected to each other. It is futile and wrong to deny this essential truth.

Debates about the morality of capitalism have come right back into the frame as a result of the events of 2008.

In a newspaper interview last year, George Soros, the well known financier, said the following when speaking of financial markets: 'Markets are amoral. In a market, you have a lot of actors. An individual does not make a difference.'

The US philanthropic organisation, the John Templeton Foundation, has been running a series of conversations between leading scientists, scholars and public figures on the theme: 'Does the free market corrode moral character?'

Globalisation, others argue, lacks a human face and can lead to amoral outcomes. The economist and Nobel Laureate Joseph Stiglitz has concluded that 'markets do not lead to efficient outcomes, let alone outcomes that comport with social justice. Competition can bring out the basest in human nature. When it's a matter of survival, morality can be pushed to one side.'

The criticisms of the capitalist system, then, are far reaching. But what, realistically speaking, are the options? Growing up as children of the 20thcentury, we know that the alternatives have been tried and tested.

History will not go back on itself. The once command economies of eastern Europe, let alone China, are not going to reverse their journey from communism to market-oriented democracies.

And not only are they not going to reverse their journeys, there are many arguments as to why, despite the crisis of 2008, they may not want to either. They have tasted freedom. They cry for more.

Next week, on 9th November, we will celebrate the twentieth anniversary of the collapse of the Berlin Wall, the most visible symbol of Communism in our time. This ended the division of Germany into Communist East and capitalist, democratic West. It effectively meant the reunification of Germany. And it was a watershed moment for the world and specifically, for Europe. The American commentator Tom Friedman has called the fall of the Berlin Wall 'Europe's 9/11.'

The rubble of the communist alternative to free market economics, pursued in the post-War era by the Soviet Union and her satellite states, bore witness not only to the triumph of capitalism but the triumph of the moral and human spirit, which is inextricably woven into the fabric of the market economy. How so?

Because creating sustainable wealth is a moral imperative. The free market is deeply ethical. The desire to create, be it art, music, buildings or money, is a moral good to be encouraged, not an evil to be condemned. Creating profit - allowing the proceeds to be shared - is the first duty of corporate and social responsibility.  

Adam Smith's Wealth of Nations, published in 1776, is often considered the bible of free market economics. One of its most famous - but also most misunderstood - passages claims: 'It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.' In another well-known phrase he refers to the 'invisible hand' of the free market.

Smith's core argument was that the aggregate of everyone's self interests would lead to the common good of economic growth.

But Smith crucially also understood that the economy had to have an ethical underpinning. Contrary to popular opinion, he did not believe that people should act with complete disregard for each other.

The market economy assumes self-interest. But there is a world of difference between self-interest and greed. They are not the same. The desire to generate profit is a moral, not a base desire. Self interest in a wider community context is motivating, liberating and morally good. The question is: how do we make those profits, and what do we do with them? 

Before Wealth of Nations, Smith wrote The Theory of Moral Sentiments in 1759, where he contended that while 'prudence' was 'of all the virtuesthat which is most useful to the individual, humanity, justice, generosity, and public spirit are the qualities most useful to others.' Markets, he thought, and profit-oriented capitalism, require the support from other institutions and other values.

200 years later, Milton Friedman wrote a famous essay in 1970 entitledThe Social Responsibility of Business is to Increase its Profits. It is often considered a blueprint for business to have one priority, the maximization of profits. But Friedman qualified this by arguing that business must conform to rules 'both those embodied in law and those embodied in ethical custom.'

Now, I do not intend to spend the rest of my lecture rehearsing arguments in favour of the free market. We know already that less efficient economic systems produce less while using more resources, with people poorer as a result. We know that the poor tend to be much poorer in socialist economic systems than in market oriented ones. We know that capitalism is more likely to create sustainable wealth for the majority of people. We know that the spread of wealth can increase opportunities for the poor. We know the evidence that the rural poor who benefit from higher incomes can keep their children in school.

But a return to the practices of the recent past is not an option. Indeed, the great strength of the market economy is its ability to self correct when excesses threaten its very destruction.

The late American intellectual Irving Kristol wrote a book in 1978 calledTwo Cheers for Capitalism. In it, Kristol presented a powerful argument for capitalism based on its economic advantages in creating wealth and its political advantages in sustaining liberty. Capitalism is the most efficient allocator of resource.

But besides economic and political benefits, we need a third cheer, the moral dimension.

If we're honest with ourselves, in the wake of the economic crisis we know the issue before us is not a systems choice. It is a substance choice - how capitalism operates and what it achieves. If our response to the recent crisis is simply to engage in the restructure of the system, we will only demonstrate that we have failed to understand the seriousness of what has gone wrong.

Capitalism isn't perfect because humans aren't. The challenge is to make the system we have better, to work out how to use it for the benefit of all and to recover its moral and human dimensions. So, where to begin?

We need to move from the abstract to the practical. As someone said: 'In theory, there is no difference between theory and practice. But, in practice, there is!'

4. The recovery

4.1 In need of a principle - 'The Golden Rule'

I want to argue that the recovery of the moral and human spirit in capitalism is inextricably connected to the recovery of The Golden Rule.

'Do unto others as you would have them do unto you'.

That phrasing, its most famous, comes from The King James translation of Jesus' words in the Sermon on the Mount. But this ethic of reciprocity also appears in a wide range of world cultures and religions: ancient Judaism, India, Greece and China. Plato's Socrates said: 'One should never do wrong in return, nor mistreat any man, no matter how one has been mistreated by him.' (Crito, 49c)

And in the Enlightenment, famously, Immanuel Kant made a secularised version of The Golden Rule the central principle of the moral system he developed.

Now, at one level, who is going to disagree with this? Who is going to say that, were we designing a society from scratch, were we building a city ex nihilo like on a computer game such as Sim City, a good first principle to lay down for citizens would indeed be, 'do as you would be done by?'

Who is going to deny that things will probably work out better -- the common good will be advanced - if we all treated each other as we would like to be treated?

The question, then, is: if we agree that the world would 'go better' if we followed The Golden Rule, why don't we?

The economic crisis is a case in point. In market terms, the crisis arose because easy money distorted the risk-reward balance. But in moral terms, the debt crisis simply would not have happened had The Golden Rule been universally followed.

With shareholder value becoming the principal objective in economic transactions, institutions and their employees sacrificed the wider interests of their clients and others on whom they were dependent. The spread of sub-prime mortgages in markets all over the world exposed how lenders were exploiting some of the poorest homeowners, treating them in a way they would never have wanted to be treated themselves.

So the crisis reveals a crucial contradiction. In general - at a macro-level, 'in the course of the cycle' - we may have self-interested reasons for following The Golden Rule. But at a concrete level, in specific day-to-day situations, following The Golden Rule may not be in our interests, may in fact harm our interests, land us in trouble, cost us something and require sacrifice.

Take honesty, for example. No one would deny that in general the system wouldn't work if everybody lied about everything. This was Kant's point - 'there could properly be no promises at all, since it would be futile to profess a will for future action to others.'

But in the crisis people did lie. People did misrepresent. They did deceive. Why? Because - at an individual level, in the short term, in one's own case - deceit better advanced personal interests. It was better not to describe accurately the risks in a sub-prime mortgage. Put the other way round, in reality The Golden Rule required and requires sacrifice.

This allows me to be more precise about what I mean by the 'moral spirit'.

'Ethics is the remainder of a debt never contracted', wrote the French philosopher Emmanuel Levinas intriguingly. 'I am recalled to a responsibility never contracted, inscribed in the face of an Other.' Rediscovering the moral spirit, then, is remembering who I am dealingwith. Remembering that, fundamentally, what I owe someone I do business with goes far above and way beyond simply what I have agreedto. In a globalised economy especially, there is an invisible, ever-present partner whose voice needs to be heard. We must go beyond contract to conscience.

It is imperative to re-connect markets with the values and morality of the practitioners. We need to think 'new'. We need to think 'we'. Recovering the moral spirit is remembering that what I owe to all partners - visible and invisible - is in virtue of our shared humanity. In virtue of a bond which precedes and surpasses any regulatory ones which might exist. Before they are my shareholder, my colleague, my competitor, my boss, my employee, he or she is a fellow human being. What comes into view, then, is the dignity of the person with whom, in this business setting, I come to interact with.

Of course regulation has an important role to play in providing a moral framework, but there are limits to regulation. The State cannot, by definition, enforce The Golden Rule. It cannot enforce the voluntary actions that make us human. The State cannot compel people to do unto others as they would have them do unto them. The State cannot enforce the moral and human spirit practically and it should not overreach itself morally.

Nonetheless, regulation can and must encourage certain behaviours and discourage others. The State shouldn't be allowed to pass the buck. The Race Relations Act in 1976 is a case in point. The Act was established by the Parliament to prevent discrimination on the grounds of race. The legislation not only went ahead public opinion, but rightly helped change it. The law couldn't eradicate racist attitudes in the human spirit, but it did prevent some of these ways of thinking being acted upon and, overtime, help change public opinion. Ultimately, the law can't directly change people, but it can provide a framework in which they are formed. 

Last month Paul Tucker, deputy governor of the Bank of England, said: 'If it is correct that we won't write a perfect set of rules - we didn't in the past and we won't in the future - then there needs to be some other constraint, something that deals with values in a more basic sense.'

Capitalism, I believe, provides an ideal infrastructure for adhering to The Golden Rule. Capitalism is an enabler, empowering individuals and businesses to pursue The Golden Rule. It allows people to make their own choices, but they have to live with the consequences of those choices. In our time, one of the consequences is the low regard in which society holds finance and financiers - the result of abdicating responsibility and ignoringThe Golden Rule.

4.2 In need of a worldview - Our shared humanity

Recovering what I have called the moral or human spirit - providing the means for implementing The Golden Rule - also requires an overarching story that enables us to make complex moral judgements. In short, aworld-view.

Phillips and Brown argue that 'A world-view is, first of all, an explanation and interpretation of the world and second, an application of this view to life. In simpler terms, our world-view is a view of the world and a view for the world.' (Making Sense of Your World, pp.32).

A world-view is at heart a story through which we view reality. The theologian, Tom Wright, argues that world-views comprise the following components:

1. World-views provide the stories through which human beings view reality. Our way of seeing the world is a story that answers fundamental questions to do with existence, identity and the future;

2. These stories can give answers to the questions: Who are we? Where are we? What's wrong? What's the solution?

3. The stories that express the world-view, and the answers that it provides are expressed in cultural symbols;

4. World-views include practice, a way of living and being in the world. The ethicist Stanley Hauerwas argues that 'ethics is first a way of seeing before it is a matter of doing. The ethical task is not to tell you what is right or wrong but rather to train you to see.'

Every human being who has ever lived has a world-view, from the Pope to Richard Dawkins to Bill Gates to George Soros - answers to the big questions and associated ways of living in the world. At the root of the recent debt crisis was a fundamentally flawed world-view of our economic transactions.

How was it flawed? We lost sight of the market's purpose, the fact that it exists as a framework to enable people to flourish. We lost sight of the journey's end. Capitalism was never meant to be the aggregation of traders only operating by themselves, for themselves - a view still widely promulgated. There is a wider purpose to our financial and trading activities. We have forgotten that creating sustainable profit is a moral imperative and that all stakeholders should share in the proceeds of wealth creation. We have forgotten that the market exists to enable human beings - in the fullest sense of the word - to flourish. We have forgotten that the market was made for man, not man for the market.

So, there needs to be a paradigm shift in the world-view that we operate by. What is the alternative narrative that allows us to see the end from the beginning? What is the framework that will enable us to make the day-to-day judgements that are required? I suggest that the story is that the market is the servant of the values of the community, not its master. This is the framework that will ensure we listen to the invisible partners, the communities affected by the decisions we take. We need to recover and implement that understanding. In his excellent Reith lectures earlier this year, Professor Michael Sandel argued that 'we need a more robust public discourse - one that engages more directly with moral and even spiritual questions.' The same applies to markets - They must engage with the moral, emotional and spiritual dimensions of being human.

4.3 Practical Applications: Four steps

So, in looking at how we can reshape commerce in a post-crisis world, it is obvious that regulation is not enough. We need values, an ethical dimension and a moral spirit. We need to reshape capitalism to reflect its original intention.

Allow me to set out some ideas and proposals for strengthening the moral quality of capitalism.

Again, an easy answer is regulation and we are seeing more of that, but regulation governs the details rather than the morals. As Adam Smith understood, what matters is how people live their lives, especially when they can affect millions of others as in financial markets.

I believe that there are four practical ways in which we can work to re-establish our world-view: Example, education, engagement and enterprise.

Firstly, example. Values are both caught and taught. A lot can be done by personal example, by people in leadership positions. They need to live by values of honesty, integrity, transparency and the highest standards of personal behaviour. But older people can learn from younger people too. They can learn from each other. Senior management need to anoint the culture carriers in their organisations, those people imbued with the moral and human spirit.

Secondly, education. We cannot assume that new entrants to the job market come with a refined sense of right and wrong. A priority must be engendering a culture of business ethics in tomorrow's generation of leaders. Schools, universities and firms can positively encourage ethical behaviour. Courses on ethics, which feature in business schools and the graduate programmes of major banks and law firms, are a step in the right direction. It would help us to shift from an 'I' to a 'we' culture.

Companies should have ethics committees on a par with the audit, remuneration or risk committee (perhaps including distinguished outsides such as religious leaders, lawyers and academics).

Thirdly, engagement. The best companies will want to forge and maintain links with other stakeholders and society in a spirit of partnership. In spite of the recession, they will wish to support programmes of community and social responsibility. This can involve lending out their staff for pro bono work and providing advice to charities.

We must think about stepping up our levels of charitable endeavour. Archbishop Rowan Williams asked a very piercing question when he said that the key question we must ask ourselves is 'For whom do we make our wealth?' The British Jewish philanthropist, Sir Moses Montefiore, who lived in the Victorian era, said, 'we are worth what we are willing to share with others.'

All this can help build a culture of 'philanthrocapitalism', to borrow the title of a recent book by Matthew Bishop and Michael Green. The point here is to recognise, as Warren Buffet, one of the world's richest men, has pointed out, that individuals cannot accumulate wealth without help from society at large.

A moral capitalism needs to address the challenge of sustainability. Climate change threatens the future of our planet. Business can and must be part of the solution, especially by creating and marketing new environmental technologies.

In addition, the projected growth in global population to around 9 billion by the middle of the century, risks exacerbating the problem of extreme poverty. Market systems and globalisation have already helped to lift millions of people out of poverty in the likes of Mexico, India and China. The market economy is the best mechanism to make poverty history. 

The tooth and claw capitalist model which supposedly suits a free market might have operated in a previous era, but it cannot in a globalised world. Globalisation has established our interconnectedness with communities cross the world. Globalisation has highlighted the fact that in making decisions there is a silent partner who is deeply affected by the decisions we take. To coin a phrase, we're all in this together. We have a responsibility to act justly, love mercy and to walk humbly.

Fourthly, enterprise. At the heart of the market economy embedded in the Judeo-Christian world-view is enterprise. Enterprise and risk run together. The market economy without incentives or reward will not fulfil its key objective to create substantial wealth for the majority of people. Risk takers therefore need to be rewarded. Results and rewards should be correlated. But the key moral failure of the debate on rewards is the failure to contextualise these rewards within the society in which they are accumulated. It is not right to disregard the political, economic or social milieu in favour of a simple corporate profit and loss account. George Osborne, the Shadow Chancellor, has rightly pointed out the value of ploughing back capital into financial institutions to enable small and medium sized enterprises to borrow and to grow. The prime purpose of banks is to oil the wheels of credit within the market economy. Mr Osborne was surely right to seek to assuage public anger which arises not because individual firms have been profitable and are, therefore, entitled to rewards, which they are, but because they have behaved as if they were not linked or connected to the wider society in which we all live. If a hole in the financial dyke is blocked by the fist of one financial institution or government, the whole area is made safe even for those who have not participated.

5. Conclusion: Doing good by doing well

Ladies and gentlemen: In this evening's lecture, I have argued that capitalism may be on life-support, but it is not dead.

I have argued that the financial crisis was caused not principally by a systems failure, but by a substance failure. The financial crisis was a moral failure.

I have argued that the crisis offers us the opportunity to recover the moral and human spirit on which the free-market was originally built.

The urgent task before us is not to produce some new economic theory or create an endless supply of regulatory red tape, but to rediscover what the free-market was always intended to be. It's about going back to Adam Smith.

The free-market not only reflects the moral and human spirit; it also offers the best context in which people can truly flourish.

The way to re-build the economy is to recover a proper anthropology, a deep understanding of what makes us human. If we do, through example, education, engagement and enterprise, we will be able to create a better world, not just for ourselves but for everyone, not least the invisible partners of our shared humanity. 

Is this naïve? I hope not. I have been hardened by the virtues of the market economy. The moral spirit is not the soft centre, but the hard essence of democratic capitalism, the greatest protector of enterprise and freedom.  

Ethics is about seeing before doing. It's the journey's end that matters. We have to persuade people that there's a deeper vision to be realised and a greater opportunity to be grasped.

And if we can do that we have before us the very real possibility of doing good by doing well.

Thank you very much.

© Kenneth Costa, 3rd November 2009