Address by President Higgins to the Chicago Council on Global Affairs

King Abdullah II Annual Leadership Lecture

Reintegrating Economics, Ethics and Environmental Sustainability

as Subject and Policy: The Challenge of Our Times

Address by Michael D. Higgins, President of Ireland

To the Chicago Council on Global Affairs

and the University of Chicago’s Harris School of Public Policy

Monday, 12th May, 2014

Tá an-áthas orm agus ar mo bhean chéile Saidhbhín [Sabina] bheith anseo libh inniu. Míle buíochas as an gcuireadh agus an fáilte a chuir sibh romhainn.

It is a great pleasure to be in this most Irish of cities, and to address institutions of such acknowledged intellectual activism in responding to the events of our time.

When Max Weber, the great German social theorist, responded to the events of his time, at the turn of the twentieth century, he was anxious to salvage as much as possible of the European rationalist heritage, but he also described the perils of the process of rationalisation which he saw as inherent to the modern condition. He spoke of the threat of a spring that would not beckon with its promise of a new life but would deliver, instead, a winter of icy cold. Max Weber was writing at a time when technocratic rationality had succeeded Reason as the central concept in political writing, and calculation had become the primary organising principle of economic life.

I believe that we are going through such an intellectual winter as Weber foretold. Ireland, like the United States, is emerging from a crisis that has interlocking banking, fiscal, social and political strands, but also moral and intellectual dimensions that run deeper than most official framings of this crisis suggest.

The recent economic and financial upheavals have thrown a glaring light on the shortcomings of the intellectual tools provided by mainstream economics and its key assumption regarding the sustainability of self-regulating markets (and, more particularly, of largely unregulated global financial markets).

This is no mere theoretical issue, to be solved within the discipline of economics. As Andrew Haldane, Executive Director for Financial Stability at the Bank of England, straightforwardly put it in his preface to the report of the University of Manchester Post-Crash Economics Society, published last month:

“The power of economics is that it affects real lives in real ways; it matters.”[1]

The recent crisis – whatever the order of its constitutive sources – has exacted a huge toll on the Irish people whose ordeals I, as President, am anxious to represent. As a consequence of the need to borrow so as to finance current expenditure and, above all, as a result of the blanket guarantee extended to the main Irish banks’ assets and liabilities, Ireland’s general government debt increased from 25% of GDP in 2007 to 124% in 2013. According to the IMF banking crisis data, built by Laeven and Valencia, the fiscal cost of Ireland’s banking crisis is one of the largest on record. The human cost of the crisis is enormous. Unemployment has soared, affecting particularly the young, and leaving so many with little choice but to emigrate.

I am pleased to say that, at the end of last year, Ireland successfully exited the programme of financial aid provided by its troika of institutional lenders – the ECB, the IMF and the European Commission – and that unemployment fell to 11.7% this month, its lowest level in five years. We are making progress but have a way to go yet to provide the employment opportunities that will put an end to the departing from our shores of our highly educated and qualified youth.

Jürgen Habermas candidly expressed the character of our current crisis in Europe and beyond, and the form of the price being paid:

“The mass of those who are not among the winners of globalisation now has to pick up the tab for the impacts on the real economy of a predictable dysfunction of the financial system. Unlike the shareholders, they do not pay in money values but in the hard currency of their daily existence.”

As “predictable” as the dysfunction referred to by Habermas may have been, and although escalating trends in house prices and indebtedness were captured in statistical data, the fact is that most economists failed to predict the collapse.

Responding to this intellectual failure requires more, I suggest, than an adjustment of the modelling techniques and forecasting tools used by most economists, or, at an institutional level, a tightening of banking supervision. Such reforms are, of course, necessary and important, but they fall outside the scope of my speech today.

The Office of the President of Ireland is an independent one, separate from Government under our Constitution, which means that I do not address issues falling within the Government’s remit. However, as Head of State, I am compelled to represent the experience and hardships of the Irish people – all of them, at home and abroad.

And as President of a small society which has been affected more than most by the global financial meltdown, I consider it crucial that we collectively reflect on the structural, and indeed philosophical, questions raised by the unfolding crisis.

It is for this reason that, earlier this year, I launched ‘The President of Ireland’s Ethics Initiative,’ aimed at stimulating discussions across all sectors of Irish society on the challenges of living together ethically.

And now to my modest proposal – in reflecting on the lessons arising from the Irish experience, I would like to propose a critical examination of some of the core assumptions that underpin economics as it is currently taught in university departments across the world, with sweeping repercussions on the conceptions informing policy making, media representations and, more broadly, contemporary public discourse on what constitutes ‘prosperity’ and the good life.

More specifically, I am concerned with the harmful separation of the discipline of economics from its ethical and philosophical sources. Indeed the elevation of one paradigm, often referred to as neoclassical economics, not always accurately, for it has many versions – the elevation of this paradigm, then, to the main object of economics education entails a bracketing off of ethical reasoning which, among other difficulties, has grave consequences for a problem that concerns us all, that is the rapid degradation of our natural environment.

I turn to these issues here and now, in Chicago, because there is much to be drawn from the distinguished traditions of thought nurtured by the city of Chicago, from the rich, complex, even paradoxical, intellectual legacy of its university, which gave us both the Chicago School of Sociology, the writings of Robert Park and Louis Wirth, and the Chicago School of Economics, with Milton Friedman as its figurehead – Professor Friedman who famously said, with alarming candour, that “there is one and only one social responsibility of business: to increase its profits.”[2]

As a young university teacher at the end of the 1960s, and a reader of the Chicago urban sociologists, who concerned themselves with the social circumstances of the most vulnerable in the city – the migrants, the homeless – I had great hopes in the emancipatory power of a humanistic social science. I did not foresee the second coming of the ideas of theorists such as Friedrich Hayek, or the influence that Professor Milton Friedman and others at the Chicago School of Economics would gain, not only on theory, but also on policy, from the 1980s onwards – and not only on this continent, but also abroad.

There are, at any time, hegemonic myths that inform, even determine the discourse of the time. After the fall of the Berlin Wall and the demise of state socialism, itself a distortion of the utopian impulse, indeed a dystopia, an extraordinary hubris emerged by way of response, which led to a widespread, unquestioning, acceptance of the myth of the self-regulating market.

The renewed interest in economic matters, at grass roots level, offers the discipline a real opportunity for a widening of perspectives: students flock to introductory courses; economic writings, such as Thomas Piketty’s recently translated book, Capital in the Twenty-First Century, enjoy huge popular success, as does the critique of Piketty’s work by such eminent commentators as Professor Galbraith, Paul Krugman or David Brooks.

But, as Andrew Haldane, of the Bank of England, put it in his preface to the report I referred to earlier, “it is an opportunity that can only be seized if the grass roots are adequately fed and watered.”[3] It is where the economics curriculum – and the role of universities in general – come into focus.

The question of how future economists are to be trained is, I believe, and will remain, one of the defining issues of our times.

As Julie Nelson, Chair of the Department of Economics at the University of Massachusetts Boston, and a prominent scholar in the field of feminist economics, put it in a paper for the Institute for New Economic Thinking, the way in which recent mainstream economic theory has directed our attention towards notions of self-interest, utility, profit maximisation and the so-called ‘laws’ of the market has contributed in major ways to economic upheavals and human suffering, including financial crises, environmental deterioration and, in social policy, for example, a confinement of care to the non-remunerated sphere of familial relations.[4]

Universities are challenged, therefore, to recover the moral purpose of original thought and pluralist, emancipatory scholarship. Economists face a moral choice – whether to partake in a consensus that accepts a failed and failing paradigm of life, as some form of inescapable inevitability, or to seek to offer the possibility of other modes of thinking, of alternative futures.

They are all the more invited to do so as there is growing student discontent at the relative homogeneity of undergraduate economics education. In 2000, the movement for “Post-Autistic Economics” was born at the University of Paris La Sorbonne. In November 2011, Gregory Mankiw’s undergraduate economics class at Harvard walked out to protest at the narrowness of the curriculum. In their report published last April, the students of Manchester University Post-Crash Economics Society repeatedly ask for “the inclusion of ethics, history and politics”; they argue that “economics students must be able to analyse the assumptions and methodology of a theory” and deplore the fact that “the ethics of being an economist and the ethical consequences of economic policies are almost completely absent from the syllabus.”

These are but a few examples of the call for a pluralist approach to economic life. It is not neoclassical economics itself that is dangerous, but rather the exclusion of all the other perspectives, which include heterodox approaches such as institutional, marxist, Austrian, post-keynesian, social, environmental and feminist economics.

As Piketty wrote in his recent book:

“To put it bluntly, the discipline of economics has yet to get over its child-like passion for mathematics and for purely theoretical and highly ideological speculation, at the expense of historical research and collaboration with the other social sciences.”[5]

My call, then, is for universities to play their role in crafting an intellectual response to the crisis that is sufficiently broad and inclusive, lest we risk replicating the structures that caused such harm. In crafting this response, we might ponder on the fact that the conceptual strength of Western political economy has never been so impressive as when it was heavily informed by philosophy and ethics.

It is useful to remember that Max Weber, for instance, regarded himself primarily as a “political economist,” and that all of his professorial appointments were in economics. Thorstein Veblen, who was a fellow of the University of Chicago is another example of an influential scholar who worked at the intersection of economics and sociology: his famous concept of “conspicuous consumption” and his analysis of the ceremonial sphere of society draws on a fine understanding of the social determinants of economic behaviour.

We should never forget, above all, that the Adam Smith of The Wealth of Nations is the same person who wrote The Theory of Moral Sentiments some years earlier; or that the two texts are deeply connected. Smith’s butcher, brewer, baker parable (“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”) has been blown up, out of context, into a whole theory about how the pursuit of self-interest at individual level can result in aggregate outcomes that serve the common good.

Such beliefs extend and are embedded well beyond Milton Friedman and his followers. According to Julie Nelson, they have become “so much a part of the air we breathe and water we drink that they are rarely questioned.” Political liberals [in the American sense] who call on governments to serve the public interest by appropriately “intervening” in “the economy” come from the same basic perspective. Such phrasing casts the economy as a free-standing, mechanical, and ethics-free sphere, into which public-spirited actors must enter from the outside.

The notion that capitalist markets are systems set apart from human ethics is even shared by many who reject capitalism. To such critics, “market logics” are fundamentally selfish, profit-driven and of a mechanical nature. In a recent speech, I have outlined how the writings of Jürgen Habermas have contributed to disseminating that view, through a dichotomy between what he calls ‘lifeworld’ – the world of the family, civil society and the public sphere – on the one hand, and what he refers to as ‘system’ – the realms of the state and the economy, which he sees as governed by instrumental logics, and immune to moral-normative considerations.

As a result, much of the critical literature tends to fall into a pattern of binary reaction: salvation is sought in a system radically different to large scale market economies – for example communitarian, non-monetized and local. Such dualism is not merely insufficient but also unhelpful.

Those who read Weber, the two Smiths, or the writings of anthropologists, know very well that humans are far less calculating than the so-called Economic Man of the contemporary textbooks. Issues of honour, integrity, purity, are rarely up for sale. Businesses and markets are, in fact, social creations within which people have to cooperate, and to which they bring complex values and aspirations. We are a co-operative species as much as a competitive one.

I very much share Professor Nelson’s view that “contemporary mainstream economics has widely ‘poisoned the well’ from which people get their ideas about the relationship between economics and ethics.”[6] The invitation to view the world as rational, calculating utility maximisers has inflicted deep injuries on our moral imaginations, on how we conceive our relations with others, and with our natural environment.

If The Wealth of Nations can be described as a foundational book for twentieth century economics, it is to be hoped, then, that The Theory of Moral Sentiments will be one of the books informing twenty-first century economic theory.

Serious scholars are increasingly arguing that a re-internalisation of ethical reasoning within our economic thinking is absolutely necessary. There is little more harmful for our conceptions of healthy economic life than, for example, the analytic treatment of care as an “externality” – as the non-economic, cooperative, emotional, realm of housewives and children. The same goes with the environment, also treated as an externality by mainstream economists, which has resulted in a literal externalisation of the topic from the core of the field.

We must, I contend, recover or create an inclusive moral imagination that allows us to see people as possibly caring for the environment, and for others, in and through their labour market roles, lest we endanger the systems that support our very livelihoods.

Ubiquitous images of self-interest – a conception of states as simply “Economic Man” writ large – are particularly harmful to thinking, for example, about the responsibilities of governments in relation to climate change. Too many scholars still dismiss notions of collective responsibility as being contrary to the pursuit of national interests, where these are largely defined in terms of short-term economic growth. Yet, as Julie Nelson put it, “if every nation sets this as a goal in climate change negotiations, we are—to use a particularly apt colloquialism—cooked.”[7]

In another paper for the Institute for New Economic Thinking, Professor Nelson examined the cultural archetypes underpinning many economists’ approach to climate change. She showed how the advocates of unlimited economic growth aspire to the role of The Hero, rejecting the precautionary approach of the Old Wife. But in a world that is not actually as safe and predictable as they assume, the result may be guidance from the Reckless Fool, animated by unrealistic illusions of control.

Indeed some sense of holding back, of carefulness, is necessary to our approach to climate change. We, as human species, do not thoroughly understand and cannot control the multitude of complex systems that make up our natural environment. Unfortunately, those economists who are in the habit of dealing with uncertainty in a mathematical, probabilistic sense, often neglect to notice that most history-changing events come as true surprises to the people living through them.

The use of mathematical models also means that ethical concerns, including issues of global inequities, are too often ignored. This is notably the case in an influential 2010 book, deceptively named Climate Change Justice, whose authors derive from what they call “the principle of International Paretianism” the idea that “all states must believe themselves better off by their lights as a result of the climate treaty”, which leads them to the extraordinary conclusion that “an optimal treaty … could well require side payments”, not to poor countries, but to “rich countries like the United States!”

We all have global responsibilities that go beyond any narrow theory of interests.

My point is not to dismiss the concerns and methods of contemporary mainstream economics, but to advocate for their re-integration with ethics. It is necessary, I believe, to overcome simplistic trade-off presentations, in which the environment is modelled as a consumer good, in order, instead, to think of economics as being about how societies organize themselves to support human life and its flourishing. It is also crucial that economics takes on board more firmly a question central to ecological thinking: that of the balance between present and future lives, or, in other words, intergenerational justice.

Thus, I suggest, we are challenged to develop new intellectual tools at the intersection of economics, ethics, and environmental studies, while remaining sensitive to cultural diversity.

In that respect, the UNESCO Climate Change Initiative offers stimulating possibilities, inviting us as it does to realise that economies – even capitalist ones – are actually part of societies, and deeply entwined and co-constituted with public regulation, cultural beliefs, and social and ethical practices.

The definition of climate change as a “global commons problem,” a threat to life on the earth requiring collective action on a global scale, – a definition provided by Professor Ottmar Edenhofer at the launch of the latest report of UN Intergovernmental Panel on Climate Change – also opens interesting avenues for thought and action. More broadly, the recrudescence of interest in the age-old human institution of “the commons,” and the notions of interdependence and shared responsibility it encapsulates, is, in my view, a most promising development.

To conclude, let me reiterate my call for a renewed, more inclusive intellectual grasp of the public world we share, our fragile planet, for which we have responsibility, and within which we must lodge a concept of global, as well as intergenerational justice.

In the light of both the unfolding financial crisis, and the latent environmental crisis, the time has come to rethink some of the basic building blocks of economics. The time has come for a new spring of economic thinking.

We are, collectively, called forth to craft our response to our crisis, as scholars such as Durkheim, Weber, Croce, Simmel, Keynes or Arendt responded to theirs at junctures of great or impending change. It is my profound conviction that, this time, we will need to give centrality to a rethinking of our relations to the natural world – a dimension which has long been a blind spot of Western thought.

It is also my conviction that, in overcoming the limits of instrumental rationality, much can be drawn from non-Western traditions of thought and world-views – from concepts such as co-existence with non-human species rather than domination, of mutual constitution rather than exploitation of our natural environment.

The current crisis, then, can be seen both as the result of a large intellectual failure, and as an opportunity not to be missed – an invitation to revisit the sites of rich scholarship in all their diversity, a call to develop new fields of knowledge, to forge novel paradigms for thought and action. And in that regard, there is little more pressing than the need to provide new ideas linking economics, ethics and environmental sustainability.

Thank you for your attention.

Go raibh míle maith agaibh go léir.

[1] Haldane, A. 2014. “The Revolution in Economics”, in Economics, Education and Unlearning. Report published by the Post-Crash Economics Society at the University of Manchester, p.6.

[2] Friedman, M. “The Social Responsibility of Business is to Increase Its Profits.” The New York Times Magazine, 13th September, 1970.

[3] Haldane, A. 2014. Op.cit., p.5.

[4] Nelson, J. A.. 2012. “Poisoning the Well, or How Economic Theory Damages Moral Imagination.” INET Research Note nb.17, p.1.

[5] Piketty, T. 2014. Capital in the Twenty-First Century. Translated by Arthur Goldhammer. Harvard University Press, p.32.

[6] Nelson, J. A. 2012. Op.cit.

[7] Nelson, J. A. 2012. Op.cit, p.13.