October 4, 2011

What its supporters call a spirit of enterprise, critics are wont to rename naked greed. Hidden behind what its proponents present as a sense of solidarity, opponents are prompt to see lazy envy. I have described society as powered by a two stroke engine running on some blend of these two sources of human energy. For best results, tuning the engine requires a careful balance in the fuel mix between the two, no matter their names.

In his latest column (*), John Kay contributes two insightful remarks. One is to suggest that solidarity is often based on fear "- there but for the grace of God go I". While this is not always the case, to see fear behind solidarity nicely mirrors those who see greed behind enterprise and goes some way towards explaining the absence of a viable third way in politics. Aren't all fledging salesmen taught people are moved to buy on greed or fear?

John Kay's second comment stresses that the best mix is not only debated between those on the right, pushing for enterprise, and those on the left, extolling solidarity, but is carried out within each side. At least in England, there are "conservatives who value tradition and consensus" above individualistic greed and not all those who vote for the Labor Party are "communitarian", free from any selfish goal.

In a two party system however, such internal debates are distorted by the necessity to later compete against the other party. In a two step selection, this favors extreme positions over more balanced solutions and the candidates with an innate talent for either blinkered naivety or rank hypocrisy.

In the United States the main casualties are rule enforcement by the government and the ability of society to take risks and make promises. For the right, rules are a burden to commerce and innovation, risk taking a justification for unlimited rewards. For the left, rules are a guarantee of social justice, unfunded promises the sure means of achieving it. Practice too often proves contrary but we are all powerless to change that perception.

Rules in fact are loved by commerce, which relies on them to protect its identity and its good name, the most precious assets of the Information Age.

The "[London Philharmonic Orchestra] has suspended four of its players for up to nine months" for using its name while "expressing their private views", per Michael Skapinker's column (**). Peter Lattman and Andrew Martin report that "Facebook [...] has sued Teachbook.com, a Web site for teachers, for using the word "book" in its name" (***). Share with Mark Zuckerberg, he will not share with you. Will Dell sell an iFire tablet?

More often than not, rules are a burden only to those whose insatiable greed they limit. Risk is similarly a matter of self-centered perspective.

Funny how those most eager to take risks, risk nothing of their own. "Kweku Adoboli, the UBS trader [is] sorry beyond words", write Megan Murphy, Caroline Binham and Patrick Jenkins (****), but his "miscalculations" bore on his employer's money and now he is a star in his own name.

Andrew Hill is right in principle when stating "if managers [...] try to eliminate any risk in their strategy, they will condemn their company to failure" (*****). But in practice ultimate success is based on eliminating one's own risks through rent seeking and insider trading. The latter is not always an individual fault. True the Galleon Group was but the creature of Raj Rajaratnam. But what are Facebook and Google doing if not trading on the inside data they gain on their users through the performance of their services?

Eliminating one's risk is not the same as eliminating all risks. Facebook and Google burden their users with privacy risks. Even if unit risks are very small, they can have large effects as illustrated by the European Commission's proposal to levy "a financial transaction tax". Its model expects "the volume of all EU derivatives trades will fall by 70 to 90 per cent" when taxed at .01 percent, according to Alex Barker and Joshua Chaffin (******). If one cent kills a bet on 100 dollars (1), it can only mean volumes are so huge that the system is basically out of human control.

The belief that, despite human nature's many flaws, freeing human actors from rules will lead to better outcomes is not supported by experience. It does not follow that, however perfectly designed, rules alone can protect humanity from itself.

Rule makers ought to ponder Jesus' claim that "the poor, you will always have with you", a time-tested teaching taken from the Deuteronomy. A social construct, economic poverty indeed cannot be cured and any attempt to erase it must fail. Yet in a democracy, eager souls still search for solutions via unfunded promises. They aim to be ordinary debt instruments, turning the risk assumed by the creditor into value created by the borrower. But shifting one's risks, in the instance to future generations, tempts the left as much as the right into creating unlimited liabilities for others.

This is especially the case when such promises foster a culture of entitlement, rights with no duties, burdened by freeloaders. Free from any fiduciary duty, Facebook and Google likewise feel entitled to convert our personal data to their sole profit, resist reform and beg to have some more.

Assume however that ideological fundamentalism gave way to more practical politics and reached a better balance between a spirit of enterprise and a sense of solidarity. Both extremes still had their kernel of truth. While no reason to stop, crafting better rules will never contain the ingenuity of the self-serving, who, like the poor, are always with us. And so any such balance will have ultimately to rely on a shared morality, the only way to check greed from being unduly corrosive and transform "claims of entitlement" into "considerations of solidarity, sympathy and desert".

The rub is, shared morality is not an abstraction. The larger the scale, the easier it is to prevent location arbitrage by unscrupulous mobile actors. Unfortunately the larger the scale, the harder it also becomes for real people to share a morality beyond the universal code of self-interest.

"When accosted by Mrs Duffy, a disgruntled voter", Gordon Brown famously if privately, or so he thought, insulted her as "a bigot". But on a global scale, what morality can share Mrs Duffy and Mr Blare, "the 46-year old herder from north-eastern Kenya" said by Katrina Manson to be "already father of 28 children" and ready to manage his four wives like a stock, in an active first in first out manner (*******)?

John Kay calls David Cameron an "instinctive communitarian", a far cry from the American right. For Danny Kruger, "a former adviser to David Cameron", "the Tories are rediscovering [...] popular capitalism, the value of the small and local" (********). But is Little England big enough? If it is, why the fuss observed by Suzanne Daley in England on the "[Scottish] decision to raise [university] rates for non-Scots" (*********)?

Does "the European project speak from souless intellect" or is it the only laboratory on Earth, fragile yet alive, with a chance to scale up morality?

Philippe Coueignoux

• (*) ................. Dickens, Mrs Duffy and a major dilemma for the left, by John Kay (Financial Times) - Sept 28, 2011
• (**) ............... London musicians misread the score, by Michael Skapinker (Financial Times) - Sept 29, 2011
• (***) ............. A Start-Up Takes On a Titan, by Peter Lattman and Andrew Martin (New York Times) - Sept 29, 2011
• (****) ........... Adoboli 'sorry beyond words', by Megan Murphy, Caroline Binham and Patrick Jenkins (Financial Times) - Sept 23, 2011
• (*****) ......... Risk must be much more than a process, by Andrew Hill (Financial Times) - Sept 20, 2011
• (******) ....... Transaction tax plan raises fear of impact on Europe business, by Alex Barker and Joshua Chaffin (Financial Times) - Sept 28, 2011
• (*******) ..... Population surge curbs Kenya's ambitions, by Katrina Manson (Financial Times) - Sept 30, 2011
• (********) ... Cameron should work to return capitalism to citizens, by Danny Kruger (Financial Times) - Oct 3, 2011
• (*********) . Universities In Scotland To Charge Other Britons, by Suzanne Daley (New York Times) - Oct 4, 2011
• (1) mind the difference between a bet on $100 and a $100 bet. The former may be for example that the underlying value will rise to $100.10.