Citizen confidence in capitalism and democracy

Summary:

 

On 20 May 2024, the Rafael del Pino Foundation organised the dialogue "Citizen trust in capitalism and democracy", with the participation of Jordi Gual, Professor of Economics at IESE Business School, and Javier Gomá Lanzón, Director of the Juan March Foundation and Director of the Chair of Exemplarity/CUNEF University, on the occasion of the presentation of Gual's book "Trusting is priceless".

Jordi Gual: In the international financial crisis, many agents were involved in its causes. But two phenomena stand out. One is a very long period of excessive monetary policies and debt generation by the authorities, and also regulatory instruments that were not appropriate. These monetary policies of easy money, of easy indebtedness, were the result of a social political process in which it was difficult for leaders to say no to the desires and needs of the citizens and the population. One of the problems of the capitalist system is that it succumbs to the functioning of liberal democracies, to regular elections and political-electoral pressure. This leads to certain speculative bubbles, whether in real estate or in other assets, such as the stock market. The theory was that it was better to let them develop and, when they burst, we would pick up the broken glass. Except that, on that occasion, the broken glass was huge. People had built up expectations about their future well-being and, without quite understanding what had happened, they had acquired training and assets and then it turned out that the training was not useful or that the assets had lost their value. Their expectations were therefore disappointed. This was a very substantial element of the crisis of confidence in the free market economy system and, by extension, in liberal democracies. But there are other phenomena. It is not only the big financial crisis and the economic aspects

Javier Gomá: There is a malaise. What is not certain is that the malaise stems from the fact that we are worse off. We are living through the best moment in history. But there is a need to transcend the homo economicus, because there are non-economic elements that are, nevertheless, those that, on the one hand, encourage the economy to do well. Then, secondly, that the economy fulfils its role, which is to be instrumental to the fundamental issue of making a civic community, a liberal democracy, moreover, more viable. Now, is it certain that we live worse than we did fifty years ago, or a hundred years ago, or two hundred years ago? Moreover, it could be that some of the things that we feel uneasy about today, for example, the economic crisis and the reasons for its economic crisis, are structural with respect to a cyclical conception of capitalism. For example, the inter-war crisis cycle between the First and the Second World War, for example, produced a crash The economic crisis has been a gigantic one, and even the destabilisation of democracies, fascism, the First World War and the Second World War. If we compare ourselves to a hundred years ago and the economy could have periodic growth crises, we have not fared so badly either: there has been no totalitarianism, there have been no world wars. Even from an income point of view, we haven't had a general income crisis, at least in the West. Sometimes I also wonder whether it is a question of perspective. If you ask an individual who was born in 1890, and who grew up in parallel to the First World War and the Second World War whether the world is progressing, he will tell you no, that the world is a disaster and that we are going down the drain. Empathetically, humanly, I agree with him, but he is not right because the world is progressing. The world is improving not only economically but also materially. So what about capitalism? I would say that, if we assume the premise that we live in an essentially imperfect world, with the only nuance that it is the least imperfect in history, not only in a material sense, but in a moral sense, then we would have something very strange. If you leave capitalism alone, it only produces commodities, it even turns men and women into commodities, it reifies. But, in the West, the development of capitalism, which is a very efficient use of resources because it produces great wealth, has managed to be an enlightened capitalism, which is to make wealth that can be inhuman, that has no human face, compatible with a plan for social justice, with redistribution. The mechanism of producing on the one hand and redistributing on the other has not been a bad formula in the West. Producing generates wealth; redistributing produces social justice. If you leave capitalism alone, of course it produces reification, but reification is tempered if you manage to educate capitalism, if you manage to make capitalism respond to social justice.

Jordi Gual: What I am questioning is not so much the failure of capitalism. To begin with, what I am doing is analysing what we would call the social market economy, which is the capitalism we practise in continental Europe. It is not ultra-liberal capitalism, nor are we talking about planned economies in the style of those we had beyond the Iron Curtain. So it is already an enlightened capitalism that we have had since the Second World War. That is a success. What I call distrust is not because the system has failed to generate wealth and well-being. I fundamentally agree that, if one could choose the moment in which to live, this would be the best. Even if you happen to be at the bottom of the social scale, you would be much better off than you were twenty, forty, sixty years ago. And yet, in spite of this, we have malaise. This is what worries me, why we don't trust the system when the system has proven to be the one that generates the most wealth. I attribute this distrust to two elements. On the one hand, the system, although it is very efficient at generating wealth and well-being, has never been efficient at distributing that wealth. The issue of equity is different from the issue of efficiency, and the social market economy is an attempt to achieve social justice. This is where the democratic system has failed to some extent in guaranteeing access to basic goods for the whole population, often because of a problem in the functioning of our democracies. At times, political parties have somehow patrimonialised the state and used it for their own ends, just as they have used public policies from a clientelist perspective, instead of being governed by the search for the common good. In this area, therefore, the social market economy has had a debatable success. Another difficulty for the free market economy is to cope with the tsunami of technological change and the revolution brought about by the globalisation of economies. We are living through decades of great tension in international economies, similar to the tension caused by the industrial revolution. The free market economy and liberal democracy have basic moral foundations: political and moral liberalism, which gives very simple guidelines for behaviour based on mutual respect and respect for human rights, but allowing different lifestyles, different ways of facing reality and asking citizens to allow coexistence, but without offering a clear moral guide that would allow citizens to face important decisions in terms of the labour market, in terms of their own identity. Instead, the processes of globalisation, of cultural change, of migrations, are subjecting citizens to question their identity. You don't have to be superman, or superwoman, to face the world we live in.

Redistributive policies in the social market economy are of two types. One is intervention via taxes and subsidies and with the welfare state to rebalance the distribution of income and wealth, and also regulatory policy, which tries to intervene in markets with equity objectives, for example, housing policies, rental market policies, education if it is part of the welfare state, as well as health care. In the four main economies of the European Union, over the last 20 years, the inequality index has increased before the redistribution process. This does not surprise me because the technological revolution and globalisation are processes that generate wealth, but do not necessarily distribute it harmoniously. There are winners and losers. The data also show that, after redistribution, and especially taking into account the benefits of the welfare state, the Gini indices we have today are very similar to what they were 20-25 years ago. Therefore, the social market economy system corrects, at least statistically, those inequalities. We have a welfare state, we have a very significant amount of redistribution, and yet there is no trust in public administrations, no trust in political leadership. When I look at the European Union as a whole, what really explains people's trust in their institutions is not so much the percentage of social spending, or the tax burden, but whether countries actually carry out policies of inclusion, especially in the labour market. If you want to have someone who is part of the social fabric, they have to feel that they belong and work, collaborate with society.

Javier Gomá: Speaking of inclusion, my mother's father didn't let her have a career and today we have included all women in the labour market. Hasn't progress been made in one generation? Aren't we talking about half of the population being excluded from the labour market? Isn't that a way of integrating?

Jordi Gual: Naturally, but there, having raised the bar, there is now dissatisfaction in relation to the wage gap.

Javier Gomá: Why, if we are the best, are we pissed off? Because it is very clear that we are pissed off. A good question is whether we are right. How many people were literate in the 1970s? Doesn't that mean a social lift?

Jordi Gual: I try to explain where the malaise comes from and to help people see that capitalism, the free market economy, is not based on greed. It is based on two headings. The first is the logical interest that each person has and the duty, even the duty, to ensure their own livelihood and their own interest. The second heading, which is what we need for the system to work well, is that people also care for others. This is part of being human, it is essential that it is there. When it is there, it is when people accept, when someone gives them trust, or when they are willing to place trust. Trusting others is costly. This is a priceless commodity, but it costs. There is a risk involved. And if the other takes on this trust, he has a moral responsibility towards me, it costs him something. Therefore, for there to be trust between us, there has to be a bit of altruism, because you have to assume that cost.

Javier Gomá: There is a moment when you argue that an enlightened selfishness, an intelligent selfishness, if it also thinks in the long term and not in the short term, can suit you without the need for altruism, a certain degree of cooperation is enough. For example, the conviction that together we can go further than I can alone. Then we set up a company, we set up an institution. There is no need for an altruistic spirit. There are times, on the other hand, when you say that the functioning of a society cannot be explained well if you don't go beyond the economic hypothesis and mention sympathy, identity, family ties, emotional ties. In the argumentation of your book, at times you suggest that one can be selfish in the long run and at other times you suggest that there are non-selfish elements that would also explain well the functioning of society.

Jordi Gual: I use the argument of enlightened capitalism especially when I discuss the business model. The classic business model of capitalism is the Milton Friedman model, the company that pursues profit and nothing else, and in the short term. Enlightened capitalism is that capitalism that pursues profit in the long term, taking into account that some decisions you make in relation to the environment, or the social environment in which you move, if you are intelligent, if you are enlightened and incorporate all that into your decision-making, you end up increasing profit in the long term as well. And I argue that this is insufficient, that sometimes it can solve the problem in the business world. But that the contradiction between social goals and environmental goals, which matter to people, can conflict with profit. The business model that resolves this contradiction is the purpose-driven business model, which incorporates the stakeholders, not in decision-making, but in enjoying the results of the production process. This requires a certain degree of altruism, without putting the company at risk at any time. The profits have to be sufficient to be able to contribute to a return on the capital invested in the company. In many businesses this is possible while at the same time having the workers involved, the workers engaged, trusting the management, and the community respecting that enterprise.

Javier Gomá: Is that a company or an NGO in disguise? In other words, are we distorting what a company is? Where do I find the ethical moment of the company? Obviously, it is good to include all stakeholders, not just the shareholder. It is good to comply with the law. It is good that entrepreneurs are decent. But the essence of a company is profit. What for me is the ethical moment of politics? What is politics about? It is about gaining power. Max beber says that power is the ability to obtain obedience. People want to be obeyed and that's why they are capable of giving their whole life, because there is a desire, there is an appetite for power and for obedience. And the rule of power, from before Pericles until today, is to obtain power, if possible in democratic systems through democratic procedures. What is the essence of business? Profit. If not, it is an NGO, or a foundation, or a pious institution. What is the ethical moment of politics? For me, the enlightened citizenry that casts its vote well and expresses public opinion in which a social demand is established, in such a way that politicians, who in reality want nothing more than to obtain power, need to create an image that satisfies an enlightened citizenry. And what is the ethical moment of business? For me, that universal suffrage, that daily plebiscite that is the market. The consumer buys this because the company, which has no other main objective than profit, wants to do so in response to the demand of an enlightened society that is increasingly demanding, and if they tell them that the product is made by enslaved children in India, they will not buy it, but if they tell them that, instead of being made by enslaved children in India, it is made with natural products and with respect for human rights, and also in a way that does not pollute, they will say, well, between two oranges, I'll buy this one. The question is, doesn't the third one represent, or could it represent, a distortion of the essence of a company, when on the other hand the company needs to satisfy the moral demands of an enlightened citizenry?

Jordi Gual: The essence of a company is not profit. For me, the essence of a company is its purpose, what that company wants to build and what it wants to offer to the market and to the citizens and to society. And profit, the profit over and above the cost that investors have to put their money into this company, is the means, but not the end of the company. It is by building it in this way that all the moral requirements can really be met. There is a certain view that economics is a zero-sum game and I believe it is not. Modern economies are a positive-sum game. There is confrontation of interests, but there is also potential for cooperation, and by cooperating and reconciling interests, more welfare can be generated.

Enlightened capitalism is undoubtedly better than the rip and tear capitalism that speculates, maximises short-term profits, and then you're on your own. There is no doubt about it. But the textures can be strained. You have argued that the employer will decide not to employ under-age workers because the customer would not accept it. It is true that the market can impose certain restrictions on what the company can do. So can regulation. In other words, the vigilance of investors, of regulators, of citizens and customers themselves can constrain the actions of the company. I'm afraid not enough to carry out those environmental or social objectives, which are good for capitalism to have that public recognition. I share your thesis that there has never been a better time. My concern is that this malaise will disappear.

Javier Gomá: The question is whether the third thesis is a moral purpose or a reality. That is to say, today, when you set up a company, it is not a healthy objective to make money, and many people do it by selling screws. I don't think there is a great purpose in supplying meat, or making social housing. Don't you think that it is not reprehensible to want to get rich by creating companies, creating jobs and creating wealth and that there would be no puritanism that would force us to reject the desire to make money, in accordance with the law, creating products, creating wealth, improving the country, creating jobs? That is already a lot and, if it is in an enlightened way, it is a great step forward. On the other hand, the third stage you describe, which you yourself give examples of its difficulty, I wonder if it is sometimes more of a desideratum, that it might have something to do with a certain attempt to heal something that does not seem sick to me, which is the traditional enterprise.

Jordi Gual: The business model of stakeholder, of purposeful enterprise, it struggles to be. From the perspective of society's acceptance of the companies it has a very positive point. Its difficulty in bringing more examples, more cases, of this type of company into existence has to do with regulatory difficulties. Regulation tends to be designed for listed companies with widely dispersed ownership. Those types of listed companies with widely dispersed ownership usually end up being preyed upon by funds that want short-term results. The company I prefer is the one that is able to put on the high beam and therefore takes into account those effects that are not visible in the short term and that is why it is beneficial. The other difficulty with this type of company is the atomisation of ownership. So when there is one shareholder in a company, or a group of family shareholders, foundations, patient investors, patient capital oriented to the long term, that is when they can maintain a purpose and execute it consistently. That kind of approach satisfies workers, collaborators, who are willing to invest their specific human capital, the skills of this company, and allows it to increase its competitiveness and generate those returns that allow it to pay back all those who contribute to the production process. It is one more element in the general argument that capitalism is not greed and selfishness, and that it works much better when that component of altruism is part of it. The case of cryptocurrencies is a paradigmatic example of those who thought they would generate a system in which trading would take place without you knowing who you were trading with, and without any regulatory authority that was giving confidence about the system. What has been the result? We have attracted into that system the worst in terms of greed and avarice.

Javier Milei is not a liberal. Javier Milei is an ultraliberal, a libertarian. I suppose that his election is the result of many years of Peronist politics, fundamentally, in which a more or less social market economy has been misused by the parties in power to patrimonialise the state and to use it in a clientelistic manner to an extraordinary degree. To what extent does this have anything to do with the progress of the extreme right on the European continent? I would not draw too many parallels. We are living in times of great social upheaval. The phenomenon of technological change is changing jobs. People are losing skills. Migration is also causing difficulties for the less educated segments of the population that have the lowest wages. There will be components of inequality. But people do not only move because of economic aspects. Their identity aspect is very important, the feeling that they are part of a community, or that the community is no longer what it was, and their dignity, which often has to do with having a job. Therefore, capitalism and liberal democracy have not been able to respond to these changes. I believe they are fundamentally technological, but also have globalisation components. In the absence of a value system like the one we had, people are turning to populism, nihilism, materialism and pure individualism. Hence the difficulties we have.

Javier Gomá: There is the issue of trust, which cannot be bought. At the beginning of the 20th century the supreme court made a decision that represented a very big change, which had to do with the actress Raquel Meller. She had suffered because she had been insulted, denigrated. The defendant argued that the moral value of the person is unpayable and the Supreme Court answered that it is unpayable, but you are going to pay for it. For the first time, a judgment for liability for moral damage was established. In other words, trust is unpayable, and I really like the expression that trust is not a good that you can buy, or produce technologically, or industrially. The word that is normally used to talk about trust, which has a magical flavour, is to inspire trust. A modern society, an enlightened society, an economically developed society, is incomplete if it does not introduce an extra-economic element, which is trust. The question is how trust is born, how trust is inspired. This is closely linked to my theory of exemplarity because my theory of exemplarity asks who you trust, who is credible, who is trustworthy, in an era like this, moreover, in which there is a consensus that we are gradually moving away from a society of a coercive rule of law, whereby it is enough to comply with the law and I don't care about the rest. There is a general conviction that obeying the law is necessary, but it is not enough. We need an extra-legal element, just as we need an extra-economic element. So we are moving from a society of coercion to a society of persuasion. You can no longer tell your child that you do this because I say so because I am your father. We live in a society where the argument of authority does not work. As for politicians, 25 years ago Anguita used to say programme, programme, programme. What mattered was the programme. Today, programmes have been replaced by autobiographies. In the end, what the politician wants is to appear as a convincing individual, rather than the programme, which nobody reads then. For me, trust is the ungraspable breath that a decent person has that makes him or her worthy of your trust. It's something you can't buy, it's something you can't manufacture, it's something you can't put into a concept, but without it the world either doesn't work or works worse.

Jordi Gual: We should add that human relationships, whether affective, personal or commercial, have a high component of repetition, of continuous interaction. Therefore, you trust someone based on facts, not on preaching. When we talk about politicians, much more so. There may be no electoral programmes, but people take note of behaviour. Hence this disenchantment with leadership, which is so common, derives from the fact that the citizenry is an enlightened citizenry and, therefore, in part has distrusted it because it has not responded to expectations. But when what happens is that there is unethical behaviour and when what happens is that they do not lead by example, then distrust is born immediately.

Javier Gomá: In the scientific sphere, if you want to know the law of gravity you have to state a formula. But in the moral sphere, where the truth lies is in the concept. In other words, if you want to explain to your son what bravery is, what do you tell him: to go to the dictionary, to go to the moral treatise, to go to Wikipedia? No. What you point out to him is that here is a concrete example of courage. Leading by example means that only example preaches, over and above speeches of words, and that if there is a contradiction between example and speech, the example prevails. Or, to put it another way, you think that speech is hypocritical.

Jordi Gual: Now, when there is a business relationship, but also in human relationships, you trust someone, that person trusts you, we meet, we collaborate, now you go your way, I go my way, unforeseen things happen. There are events, there are difficulties that you had not foreseen beforehand and you have to form an opinion about what has happened and what your collaborator has done, to what extent this has been due to his behaviour or to a neglect of what he should have done. Therefore, faced with this situation of uncertainty about what has happened, it is important that those people share certain values so that they can judge what is right, what is appropriate to resolve the situation that has been created. This is why I believe that, in our societies, mistrust increases, because the values that all of us who live together have are sometimes radically different. Therefore, you come to agreements that are not honoured and, instead of restoring trust, it is easy for it to break down. Italy is an example. The first social market economy country in continental Europe, which is going down a path of discrediting its political leadership. Some people say that Italy works in spite of the government. This is not true. If there is one economy in Europe that has been stagnating for more than 20 years, where living standards have fallen, it is Italy. Therefore, this loss of confidence in political leadership is taking its toll. We know which countries in Europe have the highest level of trust in each other and the highest level of trust in the police, in the judiciary, in public administration, in government and in political parties, in that order. The highest level of trust is in the police. It is difficult for the political party to achieve the same level of trust as the police, but in some central and northern European countries it is clearly higher, a sign that they have had an institutional system that has protected them against this deterioration of public trust in leaders. An institutional system of checks and balances, that prevents abuses of power, that prevents the patrimonialisation of the state. I place great emphasis on the need to hold our political and public administration leaders accountable to ensure that the public policies that use everyone's money are for the common good, not for groups that can vote for me.

The Rafael del Pino Foundation is not responsible for the comments, opinions or statements made by the people who participate in its activities and which are expressed as a result of their inalienable right to freedom of expression and under their sole responsibility. The contents included in the summary of this conference are the result of the debates held at the meeting held for this purpose at the Foundation and are the responsibility of their authors.

The Rafael del Pino Foundation is not responsible for any comments, opinions or statements made by third parties. In this respect, the FRP is not obliged to monitor the views expressed by such third parties who participate in its activities and which are expressed as a result of their inalienable right to freedom of expression and under their own responsibility. The contents included in the summary of this conference are the result of the discussions that took place during the conference organised for this purpose at the Foundation and are the sole responsibility of its authors.

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