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Profit-Making is Different Than Profit-Maximizing
by Ulrich Thielemann
Email: marc1seed (nospam) yahoo.com
23 Feb 2015
Discussions of jobs and the economy are often marked by trivialization, distortion, unreality and wishful-thinking. The neoliberal model promotes profits, not investments and rationalization leads to mass unemployment. System analysis and market failure are often glossed over.
PROFIT-MAKING IS DIFFERENT THAN PROFIT-MAXIMIZING
ULRICH THIELEMANN ON INTEGRATIVE ECONOMIC ETHICS
[This Wikipedia post is translated from the German on the Internet, http://de.wikipedia.org/wiki/Ulrich_Thielemann. Ulrich Thielemann is director of the MeM think tank on economic ethics in Berlin and author of “System Error” and many provocative articles on economic ethics.]
Even before my university study, the intuition creeped over me that the market cannot be the solution to all social problems. Today I would say the “market mechanism” that appears so “peaceable” and generally advantageous is not fit to be the highest moral principle though this status is ascribed by many economists.
With a whole backpack of vague questions, I chose economics for my study – a makeshift, co9mpromise or “bread” decision. The choice of my place of study, the mountainous University of Wuppertal – the neighboring village of my hometown – turned out to be a stroke of luck. An extraordinarily free searching spirit ruled there that arose from dissatisfaction with the dominant “neoclassical” paradigm in economics: Watzlawik or Habermas in economics, history of economic schools of thought, and concepts of a “critical economics.” All this was quite normal in the mountainous university at that time.
In Wuppertal I met Peter Ulrich who was a little of the “star” since he united the management theory with a critical perspective that could be called critical economics. He was soon called to St. Gallen to a professorship for economic ethics. The term played no role in the study but was immediately clear to me. In Wuppertal, we sought an ethically justified perspective of economics (instead of an ideologically abridged or trivializing/euphemistic view). My doctoral work was important enough for me to follow Peter to St. Gallen.
In St. Gallen I would systematically go to the normative ground of my intuition. A market raised to a principle amounts to an ethic of the right of the stronger. My doctoral work “Prinzip Markt” developed into criticism. In the post-doctoral thesis, this thought was deepened and differentiated… Competition like freedom from “discriminations” and “market power” as guarantor of“prosperity for all” are dominant neoclassical assumptions. Unfortunately these ascriptions to market competition are not true or not true just like that.
On one side, competition is often considered as an ethically preferable and just social praxis by economists and by the broad population. In this widely-shared understanding, competition means prevention of “particular interests,” promotion of “public interest,” absence of “discrimination” and “exploitation,” “neutralization” of market power, absence of “arbitrariness,” “fairness,” “equal treatment of everyone,” “chances” for the poor and “equal opportunities” and not only ensuring prosperity and economic growth. “Cartel” and “protectionism” are swearwords. Competition is just; limits on competition are unjust. Even if these ascriptions are not shared by everyone, economists like the majority of citizens, largely independent of their political direction, usually assumed as a matter of course that preventing “competition restrictions” and removing “competition distortions” was a moral duty of politics regarding competition policy. On the other hand, critical voices against the principle competition increase in times of “globalization,” intensified competition on the world level, “structural chance” that comes over us like the weather and the rule of shareholder-value thinking – whether implicitly or – seldomly – explicitly. Too much competition, expansion of the “principle competition” to all areas of life, the notion that competition is just on principle and votes for “monopoly,” “particular interests” and “discrimination” and so forth are decried.
How can both positions be brought together? How can the legitimate moments of both opposing perspectives be combined? Is competition now the epitome of fairness and a definitional characteristic of a just society or isn’t the right of the stronger in force here? First of all, what is competition seen systematically? Its ethical characteristics – in good and in bad – must be uncovered. The post-doctoral thesis presented a normative-ethical reconstruction of different competitive-theoretical or political conceptions of a viable economic ethics and differentiated positions on the phenomenon competition that do not argue a priori in favor of more competitive forms for coordinating social action.
MY MOST IMPORTANT PROJECT OF THE LAST YEARS
I understand economic ethics as an enlightenment project, not as L’art pour l’art or as an ivory tower assumption. That does not mean the highly specialized expert discourse of scholars is insignificant. Quite the contrary! Discourse ultimately leads to the enlightenment of practice. Academic discourses are senseless if they do not orient thinking in practice – the thinking of entrepreneurial and economic decision-makers and u9ltimately of citizens. A multitude of things need to be explained because our thinking about economics is still largely marked by economic assumptions and background assumptions.
The market fundamentalism that is not tenable in economic ethics ran aground practically and concretely with the financial market crisis. Uneasiness toward the market creeps in to more and more people. What is wrong or misguided in the “free” market? I wanted to explain this in a book that turns to a broad public. This book was titled “System Error. Why the Free Market leads to Unfreedom” and appeared in the fall of 2009 from Westend publishers (Frankfurt). The synopsis text underlines what is central:
“The financial crisis rang in the end of market fundamentalism. The attempts of economic ethics to preach “more market” are losing credibility. What comes after this? A systematic and visionary perspective to grasp the widespread uneasiness toward the advancing economization of our life is lacking. What is wrong on the “free” market? Why isn’t the market society a good society?
The economic ethics voyage of discovery ventured by Ulrich Thielemann offers such a perspective. This perspective enables us to understand the market better and in a more distanced way. It unmasks the prosperity myths spread by the majority of economists. It gives a concise introduction in ethics and repudiates Homo economicus as a model. It clarifies why the “free” market leads to unfreedom and does away with the widespread myth that “ethics” pays off in the long-term. This perspective describes the vision of a social market economy supported by the integrity of its actors. Renewing this in the global competition is vital. Market-critical, not market-denying orientations are offered for which there is a strong need today.
INTEGRATED ECONOMIC ETHICS: A SUMMARY
Profit-making is different from profit-maximizing. According to the Homo economicus model, rational actors maximize their self-interest. Anything else is irrational. One of the consequences of the 2008 financial crisis is that Homo economicus has lost its credibility.
State regulation and intervention is not unnatural but necessary so companies can pursue other goals than profit maximization. All personal achievement depends on state interventions in roads, schools, hospitals, airwaves, food safety and water quality.
Economics should be embedded in society. Society must not be embedded in economics. Otherwise colonialization occurs, profit is worshiped and people are dehumanized into cost factors.
Economic ethics is not business ethics or individual ethics. Limiting economic ethics to business ethics is ideology
Rational conduct is defined as profit maximization under the Homo economicus model. When profit maximization is not followed, defeat in competition or hostile takeovers threatens.
Rationality and efficiency are the two market principles. Both are problematic or dubious when speculative investment eclipses productive investment.
Raising the market into a principle is a characteristic of neoclassical economics that gave us “efficient financial markets” and markets tending to equilibrium. The economization of life or economism is denial of economic pluralism where ideology and neoclassical myths block an open and dynamic future.
Ulrich Thielemann was a professor of economic ethics at St. Gallen University in Switzerland and now directs the think tank MeM on economic ethics in Berlin. If we followed critical alternative economics, the future would be less blurry and Orwellian. Reality would interrupt the economic discipline so repression, greed and contempt would be challenged.
CRITICAL ECONOMICS OR INTEGRATED ECONOMIC ETHICS
By Ulrich Thielemann
[This article “Das Ganze, des Wirtschaftens denken, und zwar kritisch” published October 31, 2014 is translated from the German on the Internet, http://www.mem-wirtschaftsethik.de/blog/blog-einzelseite/article/integra/.]
The Institute for Economic Ethics at the University of St. Gallen, Switzerland is celebrating its 25-year existence with a jubilee feast asked me for a contribution.
That gave me an opportunity to develop my version of an integrative economic ethics or paradigm of an ethically-integrated economics. The core ideas are summarized here:
The reduction of economic ethics to business ethics or individual ethics is ideology because it assumes the general market interaction conditions and the underlying integration logic (“the entirety of economics”) as legitimate without critically solving the problems.
The competitive market is an interaction connection and takes place between people, not on the moon or in models. Interaction relations have to be just.
Economics is inevitably and practically normative. Therefore an integrative economic ethic flows into an ethically-reflective economics.
The task of economic ethics or ethically-reflective economics consists in clarifying with ethically profound terms how we relate to market and competition.
The purpose of the search for knowledge is clarifying the problems and strengthening our powers of discernment on micro- and macro-ethical fields (judgment ethics instead of application ethics), not to find “solutions” for pre-given “problems” declared as ethical.
The need for clarification results from the fact that market interaction relations through their competitive character have a systemic or authority-free nature and are hard to understand.
An individual economic ethics can only recognize a problem in the “external” effects of market interaction. It must admit that under the conditions of competition it is difficult to impossible for actors to refrain from external effects.
The unfolding of competitive market logic is problematic
•Because intensified competition inevitably creates winners and losers.
•Because the growing disparities in income and wealth can hardly be understood as fair or just.
•Because the economizing of living conditions and interaction relations (above all individual lifestyle, education, politics and reasonably “embedded” market events) corrupts this and undermines their developmental freedom.
The interaction logic of the competitive market expressed in its ethical qualities is ahistorical. The intensity and extensity of competitive market logic is historical and changeable. The question of the market is a question of measure or moderation.
The option of limiting the unfolding of market logic arises here. The idea of protecting from “colonizing” (Jurgen Habermas) and “corrupting” (Michael Sandel) incursions in market logic extends to economics as an interaction connection embedded in the perspectives of fairness and purpose and not only in social spheres located outside “the economy.”
In a globalized economy, the economizing of all living conditions can only be halted through global competitive cease-fire agreements.
THE MISUNDERSTOOD ROLE OF CAPITAL AS THE SUPPOSED “SERVANT OF THE REAL ECONOMY”
By Ulrich Thielemann
In the article I reject the thesis defended at least implicitly by nearly all economic experts that the world financial crisis manifest today in the so-called euro- and state-debt crisis refers back to capital “squandered” in “speculative” businesses and needing to be re-installed as “servant of the real economy.”
Understanding capital as a “servant of the real economy” is an expression of a naïve capital market gullability or unquestioning faith. We must decode the trade secret of the competitive market and capital that plays in it. This is a process of “creative destruction” that drives us to growth. Capital is a kind of invisible “whip” for real economy actors, the employees. We simply have too many of these “whip” effects which is reflected in the economizing of living conditions and growing income disparities.
We first regain political dignity as a democratic community when we see through these connections. Then we recognize “courting” of capital (Hans-Werner Sinn) is a wrong way and instead tame capital which can only succeed as a global public policy.
A Brief Theory of the Market 1-20, 2000
Managers do not only serve shareholders, 2005
Economism, Economic Ethics and Donations, 2004
Banking crisis is scandalous, 2009
The Case against the business case, 2008
Vanity motivates bankers, 2008
Fallen Stars, Greed and a New Morality, 2009
Economic Ethics and Business Ethics, 2009
Crazy Relationships, 2012
It's about competition more than growth, 2012
The world in the state of economic war, 2012
Studying economics today is like brainwashing, 2012
Debunking the business case for ethics, Jan 2013
Expression of greed and contempt, June 2013