To prevent economic crisis, fix your culture not the free market

In the aftermath of every major economic crisis in recent history, there has been a debate over whether free markets have too large a role in society and whether they cause unfairness. Politicians, especially those on the left, like to stress how they would regulate society and the economy for the sake of creating a better world.

However, is it possible to evaluate whether free markets are fair? Socialist ideologies – often based on Rousseau’s conviction of private property being the source of evil and Marx’s belief that capital causes the exploitation of workers – build dream-worlds filled with endless state regulations. These flawed conceptions and imposed diktats inevitably lead to violently controlled centrally planned economies, like which Slovakia suffered from during its vassalage to an imperialist Soviet Union.

The Soviet Union was the end point of Lenin’s socio-economic process, and it failed to deliver the utopia that all socialists believe in. The failure of the USSR should teach all economists, politicians and commentators to respect the truth. Economies based upon Adam Smith’s model of self-interest are morally, intellectually and fiscally superior to any socialist centrally planned model.

I grew up in Slovakia – in the aftermath of Soviet repression. I lived through the struggles of transforming a planned economy into a successful market-driven one. I have seen first-hand the importance of society learning that with great freedom comes a great responsibility.

It is clear to me that it is not market-driven principles that cause unfairness, but rather the values of society and the individuals within. To solve inequality countries should not turn to state regulations or redistribution. Instead the answer lies in the promotion of sensible values, values that enrich society and enhance the common good. 

The main reason for this approach is a philosophical understanding of human nature and the principles that drive an individual’s behaviour within society. I take an Augustinian view of human nature, of being born in a rebellion of body against mind, which can progress into a Hobbesian homo homini lupus state of nature, if our nature is not civilised.

Humanity has, broadly speaking, been civilised for millennia with ethical values and behavioural patterns that have evolved through our social interactions and cultural development. This drives Adam Smith’s work in human social and cultural enterprise, and his understanding of human nature as “simultaneously self-regarding and other-regarding”, the two key sources of motivation for every rationally and emotionally mature human being. Self-interest will drive individuals to work harder if they want to get ahead, thus contributing more to their business and more to society through increased spending power and tax contributions. Additionally, the second motivation is less obvious, but it ensures common norms across society as people share in the emotions of their peers. Individuals do not want to be seen to behaving in a way that would lead to social judgement.

Faith in the free market system in post-communist countries was dented by the impact of the 2008 financial crisis. But we must not forget that at the heart of the financial crisis was a moral crisis. The tendency of commentators to ascribe the reasons for the crisis to a failure of the market is shallow and perfunctory. The belief that ever-increasing regulations will prevent another depression is naive. It is in the second motivation that governments should be looking for the answer. Large financial crises are caused by runaway greed, left unchecked by the diminished impact of cultural and societal pressures on ethical behaviour. Governments should be creating conditions where culture-building institutions (such as family, religion, education, art etc.) can operate effectively to nurture positive self-regarding and other-regarding sentiments of individuals to be enhanced.

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