ECONOMIC GROWTH ALONE
CANNOT SOLVE SOCIAL PROBLEMS

By Peter Ulrich


Ethos and Economy Our economy and its reputation are depressed. People lose their jobs; bosses are put more and more in the wrong light. Economic ethicist Peter Ulrich, professor at the University of St. Gallen, Switzerland, answers burning economic and social questions and designs new models for a sound national economy.



der arbeitsmarkt: Daily we hear in the media about accounting frauds, insider trading, exorbitant wages and mammoth severance packages for managers. On the other side more and more people lose their jobs. What is the response of economic ethics?

Peter Ulrich: The present ethos in economic life goes back to Calvinism, as the sociologist Max Weber has shown in his famous study “The Protestant Ethic and the Spirit of Capitalism”. That is the foundation for the fundamental belief in the market principle and the total deregulation of markets that more and more competition only bring good results. Today the shady sides multiply. The current phenomena of an uninhibited money fixation and market fundamentalism are expressions of a dubious economic ethos.

You fight a battle against windmills. How will you bring your economic ethos to the people?

Peter Ulrich: Our task does not consist simply in bringing ethics into economic life. Economic life ricochets off the ethos that already exists. Certain business practitioners or economists often react very negatively and dismissively to ideas of economic ethics. Market believers dream of a total market society instead of a market economy embedded in a rational social order. Profit maximization and economic growth are raised to supreme principles. We will criticize this absolutized economic thinking and relativize the dominant thought patterns.

Has anything upset you since the founding of your institute 16 years ago?

Peter Ulrich: Yes. We try to prevent economic malformations. Our goal is modest: to put a small lamp in the back of the heads of economics and business students who leave the University of St. Gallen after four years that flickers now and then and asks: Don’t other values count than the purely economic? Students should not only think in categories like efficiency, productivity and growth. Economics should be rationally adjusted in human, social and political contexts. The Economy is not an end in itself but only a means to a good quality of life.

What is uppermost for decision-makers in the economy, the top managers?

Peter Ulrich: We seek to address the experts even before the practitioners in economic life. A debate in economic ethics that started 20 years ago like a little brook has become a half Mississippi. Central questions of modern society are involved, the clash of powerful economic orientations and interests on one side and cultural and ethical-political ideas on the other side.

The economy worsens. Its reputation deteriorates. What is wrong?

Peter Ulrich: Perhaps I will surprise you but we shouldn’t act as though the constantly increasing unemployment were an unforeseeable and undesired side-effect. Realizing more and more output with fewer and fewer persons is the goal and economic success of this rationalization dynamic. I would be the last one to simply stop the productivity advances so jobs could be maintained. On the contrary, these advances have freed people from strenuous labor.

Base unemployment increases; the majority of the unemployed have no chance any more for re-integration. How can we counter the rising unemployment?

Peter Ulrich: The problem is that the social organization of our national economies lags behind the productivity level. Many parts of our life – purchasing power, social respect, social relations and personal developmental possibilities – depend on success or failure in competing for good jobs. This coupling must be undermined so the further rationalization of the economy is socially compatible. Otherwise a division of society threatens.

Some suffer under stress because they have too much work and others because they are jobless.

Peter Ulrich: An increasing output-concentration and frantic pace occur. The atmosphere is no longer pleasant even at a university like St. Gallen. The pressure to perform reaches the limits of what a person can handle psychologically. While the successful work themselves to death, society denies a job to the losers. The social gap widens. This is again not an unplanned or undesired secondary effect but the actual function of competition, namely to distinguish between the strong and the weak. Competition gives the red card to the weak: sorry, unproductive, useless. The more we rely on deregulation and intensified competition, the greater the share of the population that receives the red card from the labor market.

There are also striking differences in wages. The income of the working poor is not enough to secure their existence. In contrast, Daniel Vasella, CEO of Novartis, earns 20 million Swiss francs a year. Is that just?

Peter Ulrich: The distribution of wages is a direct reflection of the hierarchy of power. The exorbitant top sallies in the executive floors of large firms have nothing to do with performance. The income of the occupational group is the only standard.

How should the tasks be apportioned between the state and the economy?

Peter Ulrich: The conventional wisdom is that the economy increases efficiency according to its operational logic. The state should take over the follow-up social costs. And the causal agents of the costs bash the state for spending too much for social redistribution. This is a completely schizophrenic situation. Current social policy only combats the symptoms. Tackling the causes would be better, that is enabling as many citizens as possible to secure their existence under their own steam. In the OECD countries alone, 38 million persons willing to work are unemployed today. A billion persons worldwide are jobless. In the future everyone will no longer have the chance of gaining their income through paid work. As a result part of the gross domestic product will have to be distributed differently than through the labor market.

That sounds like communism. The state distributes income.

Peter Ulrich: That sounds disconcerting for many people who internalized our old Calvinist work ethos. A society of free and equal citizens has nothing to do with a social hammock or with communism. Rather what is central is the original ideal of civil society. As citizens we are all equal and proud of that. One of the central questions of this century is: How will we deal with the losers of this economic dynamic so that we don’t ignore their status as free citizens?

What are the social and economic prerequisites of a society of free citizens?

Peter Ulrich: A strict individual accounting of performance is impossible in a division of labor national economy. Since the hunters and gatherers, we know that cooperative life is based on solidarity. The men went on the hunt; the women planted vegetables and raised the children. Meat and vegetables were shared out of solidarity. Moreover, economic development requires that there are enough solvent consumers. No economic growth can occur in a third world country where in the extreme case 5 percent of the population has everything and 95 percent have nothing. Sooner or later a growing part of the population will be payed for consuming and not producing. The bottleneck or shortage is with demand, not with production.

Must not the economy grow so the future will be bright?

Peter Ulrich: No country has ever solved social problems by means of economic growth alone. The solution of the social question will only occur through political measures.

What would a good social policy look like?

Peter Ulrich: First of all, education is very important. People must become capable of the labor market or able to cover their needs independently. In addition basic rights must be given to people. Everyone must have the right of access to education, jobs and credits. Basic social rights are necessary that assure a dignified life even for the losers. Competition is risky; everyone cannot be successful. After the collapse of communism, the Chicago boys, the neoliberal hardliners, were sent to Russia. As a result, Russia experienced its most massive economic decline in the nineties; the gross domestic product fell almost in half because the cultural presuppositions and the legal institutions were lacking. The introduction of free enterprise competition must always be embedded in an appropriate social order.

How do you judge the increasing globalization?

Peter Ulrich: Globalization does not only refer to free competition. Globalization of an open-minded consciousness and education are vital. Reasonable world-political conditions of markets that include the social question must be created. The greatest economic boom of all time occurred in the middle of the 19th century. The social question emerged alongside the massive gain in prosperity. The working class movement began to resist the middle class that tried to secure its privileges with all its means. The consequence was the political radicalization that culminated in the two world wars in the 20th century. When one sees this epochal connection, it is alarming to observe forces again today that stubbornly oppose the creation of rational global economic conditions. If the so-called South, five billion people, would conclude that the rich OECD countries oppress them and will not longer tolerate this world regime, then very troubled times await us.

In your last book “The Demystified Market,” you speak of a “deeply spreading re-orientation in economic thinking.” What do you mean?

Peter Ulrich: We must bid farewell to the Cold War in the economy. Some are for more market across the board; others are for more state. The problems are shifted to and fro. Neither the market nor the state can solve everything. A third pole is necessary, the civil society. Citizens must assume a reasonable measure of personal responsibility for their actions. This is also true for businesses as “corporate citizens.” The more citizens and businesses are bound to principles of responsible conduct, the less state is needed. In the long-term, our social order must be reconsidered.

How would that appear concretely?

Peter Ulrich: Free citizens want to live in a society that guarantees the greatest possible real freedom and a dignified life to all its members. We either produce full employment again or if that does not succeed partly uncouple the distribution of purchasing power from success or failure on the labor market. I think of a guaranteed basic income. Whoever cries this is socialism is offered popular capitalism. Every come-of-age citizen receives financial assets with which he or she can build a reasonable existence. This would be consistent with capitalism. Our present affluence is inherited from past generations. No one has gained all this him or herself. A liberal society gives fair starting chances to members of every generation.

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Translated by Marc Batko, Portland, Oregon.
Slightly modified by the author. Original version in German: „Wirtschaftswachstum allein löst kein soziales Problem“, in: Der Arbeitsmarkt (ed. by the Swiss State Secretariat for Economic Affairs, Berne, Switzerland), Nr. 10, 2003, pp. 30-33);
www.der-arbeitsmarkt.ch/upload/archiv/Wirtschaftswachstum%20allein.pdf