An economic jurisdiction is made of thousands of entities, some being individual investors operating privately or in a group and some being corporations ranging in size from the small to the very large. They each have a set of tools to work with and a variety of strategies to choose from in their quest to implement the plans they draw up for themselves and reach the goals they set out to accomplish. However, all these entities have one thing in common, the imperative of having to stay alive and to look after their interest.
Ever since the time when people first came together and started to live in society, they created an economy, and this is when they discovered that they must have a system which will work for everyone or they will be generating a discontent that will please no one. The people concluded they must try something and a few got busy thinking about what to do. They conceived all sorts of systems, one to harmonize with the environment in which the system was created, one to flow nicely with the situation in which it was adopted, one to suit the temperament of the ruler that called for its creation and so on. And all these systems were implemented at one time or another, were tried under different conditions and were allowed to yield their results.
And despite all the goodwill that was poured into these valiant attempts, not one system turned out to be reliable enough for use in every instance without creating trouble of its own. Each and every time, one or the other of the systems broke down, and they all proved to be flawed in some respect. In fact, the use of these economic systems threatened the wellbeing of the societies they were meant to serve, and when you came right down to it, you could trace the flaws in each of them to the imperative of having to promote one’s own interest. Not that the idea itself was a bad one but that the pursuit of self interest was pushed to a limit that could not be sustained. In other words, the legitimacy conferred on the promotion of self interest was used by some people to promote blatant selfishness. The action of the few then forced the other people to follow suit, a development that caused the system to break down completely.
Normally, this is where the law would intervene and place a limit on the excesses of human behavior. Indeed, humanity has learned to make the kind of laws that keep blatant selfishness under check. And while such laws have met with success in all sorts of fields, they failed to do so in the field of finance. Here, the law discovered that the line separating the pursuit of legitimate self interest from what is criminal behavior is so blurred that it becomes impossible to discern where legitimacy ends and crime begins in many of the cases.
And so, the choice of system handed to humanity after all the instances of trial and error were exhausted came down to only two: First, there was the centrally planned system of economics which proved to be inefficient by virtue of the fact that to curb the tendency to descend into selfishness the system killed an important human trait, the potential for individual initiative to flourish and to improve on the existing set-up. But this being the one trait where a large number of people could benefit by riding on the coattails of the few who took charge and forged ahead, killing the trait killed the chance that the multitude had to pull out of misery and lead a better life. The experience of the now defunct Soviet system has been one such example.
Second, there was the capitalist system of economics where the excesses of the few, dubbed unfettered or savage capitalism, proved to be a serious threat to the wellbeing of the many, sometimes inflicting severe damage to the society that adopted it. And where the excesses were not restrained by law as effectively as they should have been, the capitalist system started to be feared as much as the dreaded system of central planning.
But there is here a reality that must not be ignored. As things stands now, when people succumb to the temptation of being so selfish as to clearly slide into criminal behavior, the law catches up with them and hands them a just punishment. Unfortunately, however, the goal ought not to be that of catching these people after the fact, it ought to be that of deterring them from succumbing to the temptation before the fact. What this means is that we need to find a method by which we can do the sort of early detection that will be reliable and effective most of the time.
Here is where the difficulty lies and where the researchers in human behavior have collided against a brutal reality. Because the intent to commit a crime is not something you can measure or quantify, you cannot detect it with an instrument. What you can do is rely on your intuition and the power of empathy to detect someone’s intention before they turn the temptation into an illegal act. You may then fantasize about doing something that only a few now dare to do: Warn the potential culprit that they are on the wrong path, ask them to back off and spend time talking to them about the merit of ethical conduct.
Well, if no one initiates this sort of talk with a colleague or a friend, it is something that is done by such people as religious figures, social workers, philosophers, artists and so on. Unfortunately, human beings have never been successful at making their sermons stick long enough to spread the basics of ethical conduct widely enough. The do-good preachers have been even less successful where the pursuit of self interest was legitimized as it has been in the field of finance. And the sad truth is that an approach which does not include the use of sticks together with the carrots will never succeed in this sort of endeavor. For this reason, the people who want to persuade others to practice good ethics must accompany their preaching with a deterrent that is so credible it will send the fear of punishment in the heart of potential culprits not in the afterlife but in the here and now.
And this opens the discussion about the law because in a society that is governed by law, the way to warn about possible punishment and, where warranted impose the punishment, is to do it through the law. In fact, what is happening now in many parts of the world, including the Congress of the United States of America, is that new rules are being debated to update and to modernize the body of laws that have failed to uncover and prevent the last financial crisis.
However, before the law is asked to intervene, I suggest that something be done first. I suggest that a quasi-judicial body be set up to oversee such matters with the mandate to encourage potential whistleblowers to come forward and share their intuition with specially trained people. The whistleblowers can come with only a hunch and keep the staff abreast of what is going on in the places where they have intimate knowledge. They will be questioned and probed thoroughly to make sure they are not doing this to get back at someone, and if found credible, their hunch will be quietly looked into by professional investigators. If the latter find something that deserves to be acted upon, they will determine the best way to trip and to warn but not to entrap or prosecute the potential culprits. The investigators will act before any hand has been soiled, not wait to catch someone red handed after the bad deed has been done.
As for the reason why some people go astray, it is clear that a mismatch is created as a result of a simple confusion turning into something more serious. It is that some people become so immersed in the joy of the financial game, they fail to see the difference between knowing how to play the game and knowing how to apply the rules of financial exchange. They play to win and to maximize the profit to themselves but ignore the fiduciary responsibility they have to benefit the largest number of people whose interest they are obliged to serve. The failure to see this difference creates a mismatch at the interface between the lure to go for personal wealth which pulls them in one direction and the duty to fulfil their responsibility which pulls them in the opposite direction.
And so while the whistleblowers will help to reduce the possibility of people succumbing to the temptation of doing the wrong thing, it will be a good idea to also have programs that will instill in the young the need to resolve the tension between being satisfied with what they have and what their imagination says they can have by taking a short cut. Before the religious figures, social workers, philosophers, artists and so on get into the act and preach ethical conduct, the parents should begin the discussion at home, and the teachers begin it in the classroom. In addition, society as a whole must talk all the time about the subject so as to remind one another that punishment exists for those who would rob society to get rich quickly. When such activities get to be viewed as being anti-social, few if any of the young will want to pursue them and most of the adults will think twice before adopting them.
The continuous message that should come out of this is that if greed is good for the nation as Hollywood says it is, it can be good only when the game is played by the rules that have been set for it. Breaking the rules is bad for the nation, and those who do so deliberately will end up spending time repairing the damage they cause to society -- which is not exactly a happy Hollywood ending.
Finally, with regard to the questions posed at the beginning of this series, the answer is yes, the forces that act on the developing nations as they experience growing pains are similar to the forces that have acted on the advanced economies in their latest predicament, and they are similar to those that usually cause the exaggerated booms and busts in the various economies. These forces are called human failings, and they can be tamed by the same approach, the use of carrots and sticks backed by a policy of eternal vigilance.