_ Prof. Dr. Max Otte, German-American economist and fund manager. 19 April 2022.
-
Introduction
Globalization has an Anglo-Saxon face. Reliance on capital rather than credit markets, a ruthless ethic of success (rather than responsibility), the primacy of private over public law, the absolute dominance of private ownership, and the low share of public goods are all traits of the Anglo-Saxon economic model and his trust in the private before the public interest. After the fall of communism, the wave of globalization also reached the reform states of Europe and led, among other things, to intense competition between the Anglo-Saxon, German and French legal systems.
At the present time, finance capitalism and neoliberalism have triumphed in most countries, so that Philip Thergar spoke of a “new order in the old continent”.[1] And yet, continental Europe possessed an economic model fundamentally different from today’s victorious model of finance capitalism, characterized primarily by the following features:
— an ethic of responsibility instead of success,
— a social responsibility that goes with ownership,
— a culture of solidarity and public services,
— strong banks and credit markets.
The French economist Michel Albert called this model “Rhine Capitalism”,[2] Ludwig Erhard in Germany called it “Social Market Economy”[3] and the Catholic Church has developed an entire system of social ethics to support that model.
The current dogmas and measures of economic policy are Anglo-Saxon in character. One of the reasons for the differences in economic and ethical access to social reality may be that the peoples of Central Europe never had extensive colonies or other external possessions whose exploitation would have been more profitable than traditional economic activity. The elites of Central Europe thus were not able to leave the country to seek their fortunes abroad, such as by administering colonies or establishing extensive trade networks; rather they had to work within their own societies and improve them, as shown by Alfred Chandler[4] and Carl Schmitt.[5]
2. The continental European model
2.1. Responsibility instead of success ethics
The teachings of the Catholic Church include the responsibility of the rich and powerful to the poor and needy as a fundamental moral obligation (Catholic social teaching). The Dominicans, for example, developed these teachings in Germany after World War II, and the Institute for Social Sciences in Warlberberg continues Catholic social teaching in a contemporary form.
This is also true, to some degree, of continental Protestantism and Pietism, which differ fundamentally from Puritanism and the Anglican Church, where belief in predestination plays an important role: success in this life an indication of salvation in the hereafter. The success justifies itself. This doctrine has had a massive impact on today’s business ethics.
2.2. The social responsibility of property
Article 14, paragraph 2 of the German Basic Law says: “Ownership obliges. Its use should also serve the public good. It also states that property can also be nationalized if this change of ownership is accompanied by sufficient compensation.
In Anglo-Saxon economic theory, however, as it can be traced back to Thomas Hobbes and John Locke, private property is considered absolute, and it is one of the central functions of the state to protect this property (“property rights”, “contract theory”). In a Hobbesian world, every landowner sits on his property like an absolute king, while the state protects him from any outside encroachment.
This different understanding of property also exerts an important influence on the respective economic order. In the United States, much of the country is fenced off, even in the deserted west, and the owner has the right to evict any intruder (and should a shootout ensue, it will usually be the owner who will be handed the right). Even access to the national parks is often very difficult because many of the
The surrounding properties have been fenced off by the private owners, leaving only a few small access routes open.
The German hunting law reveals a fundamentally different approach to the understanding of land and property. After the liberalization of hunting in the early 19th century, forests and fields were soon over-hunted until the hunting laws were reformed: the owners retained the economic use of the land and the general public was given the right to use the land for recreational purposes as long as they behaved responsibly.[6] The hunting right itself, however, was split off from this and the owners of smaller plots in hunting cooperatives of at least 80 hectares to ensure more responsible management of wildlife and other animal life. The cooperative then leased the hunting rights to a tenant.
But times are changing: through the intervention of the European Court of Justice, the Anglo-Saxon understanding of the law penetrates into this area as well, because individual landowners try to have hunting prohibited on their property, and thus bring about a well thought-out system that aims to reconcile a wide variety of equal interests had been conceived, was in jeopardy.
2.3. Culture of solidarity and government services
The continental European economic model sees public, state-funded services as desirable in many areas of basic public goods and services: healthcare, pensions, education, media, and public infrastructure. The underlying idea of this order is that these services should be available to all citizens on a roughly egalitarian basis and not dependent on the wealth of the individual. Once again, this culture of public goods finds its roots in the charitable works of the church and later: the guilds.
In contrast, the Anglo-Saxon world has a tradition of privatization that begins with the partitioning and fencing of the commons in the 16th century and continues through to the infamous “highland clearances” in Scotland in the early 19th century as members of the clans evicted from their lands by the noble landowners and even their homes set on fire to make room for the more productive flocks of sheep.
Today, even the OECD (Organization for Economic Cooperation and Development), which can hardly be described as a socialist organization, admits that globalization harms the middle class. Successful and extremely wealthy investors such as Warren Buffett (“There’s a class war, alright, but it’s my class that’s waging it and unfortunately, we’re winning.”)[7] or Ray Dalio (Bridgewater) warn of ever-increasing social polarization.[8]
As early as 2008, Le Monde Diplomatique published a special edition on the decline of public goods, in which the authors lamented the gradual disappearance of these goods. Unfortunately, it’s already five past twelve today. Especially in a conservative Europe of the future, we urgently need basic services and adequate social security for ordinary people to make them secure and confident citizens.
2.4. Strong banks and credit markets
The continental European model was based on a system of strong banks and credit markets; Stock markets only had a supportive function. Credit markets strengthen risk management and the development of long-term relationships: trust, limiting risk and securing sustainable profit are rated more important than short-term maximum profits.
This culture of mutual trust, long-term orientation and risk management went hand in hand with a strong decentralization of capital flows.
In addition to this, a strong sector of savings and credit institutions and cooperative banks ensured a steady supply of credit to small and medium-sized enterprises and artisans, creating a much more active sector in this area in Central Europe than, say, in England or the United States; only France, because of its imperial history, was subjected to a process of greater centralization earlier than Central Europe.
Stock markets, especially after the economic crisis of the early 1870s, were strictly regulated by law and performed only a supportive, not a central, financial function in the economies of Central Europe.
- Business schools and business schools
Economics schools and business schools are largely based on Anglo-Saxon economic thought and teach an extreme individualism that even Adam Smith in his radicalism did not advocate. This extreme individualism was further elaborated and promoted by Karl Popper, Ludwig von Mises and Friedrich August von Hayek in the 20th century, as well as Milton Friedman. The first three can actually be described as Anglo-Saxon thinkers, since they have completely adopted the intellectual attitude of their host culture, which can actually also be said of Karl Marx, whose world view was only contrary to national economic thinking insofar as there was no competition between individuals, but classes took place.
The Mont Pelerin Society was founded in 1949 to promote the renaissance of liberalism in Europe. In the 1960s, a rift developed between proponents of a radical market economy, such as Friedman and Hayek, on the one hand, and proponents of a strong, albeit limited, state that sets the general rules (“Ordnungspolitik”) on the other by Wilhelm Röpke and Alexander Rüstow – a conflict which ended with the latter’s departure from society and finally ushered in the dominance of Anglo-Saxon thought.
Today’s economics faculties breed mathematically and formally highly qualified students who lack any knowledge of economic history, sociology, and the history of ideas. These students are only able to apply and think through a single economic model — that of the eighteenth- and nineteenth-century merchant, and they apply that thinking to everything (“If you only have a hammer, all problems look like nails.”) Economics faculties have therefore become the seminaries of finance capitalism, educating only uniformed preachers of the current, hyper-capitalist, hyper-individualist model. At the same time, the business schools are the officers’ schools of finance capitalism and produce uniformed practitioners as well.[9]
- What’s next?
Some reformist states have begun to question the current model of finance capitalism, even if in Germany and France it remains the official doctrine. In many countries, for example, the privatization of pensions has been reversed. Even in the United States, social aspects and questions such as the regulation of oligopolies such as the big technology companies are gaining in importance, and even the advocates of radical socialism are finding a stronger voice. The current Chinese variant of capitalism also threatens the dominant finance-capitalist model.
The middle class has been suffering from globalization for more than thirty years. A new mass of super-rich has emerged, which is largely beyond all national laws, as the Oxfam report “Working for the Few” from 2014 impressively shows.[10]
It is time for continental and central Europe to rediscover its own traditions and create a competitive yet social model for our future. It is high time to once again uphold the tradition of sustainability, responsibility and solidarity. An economic system based on these values can be innovative and highly productive at the same time, as the past has proven. And it can also project European values into the future.
Notes:
[1] Ther P. (2014). Die neue Ordnung auf dem alten Kontinent – eine Geschichte des neoliberalen Europas. Berlin.
[2] Albert M. (1993). Capitalism against Capitalism. London.
[3] Erhard L. (2009). Wohlstand für alle. Köln.
[4] Chandler A. (1994). Scale and Scope – the Dynamics of Industrial Capitalism, Cambridge, Mass.
[5] Schmitt S. (2018). Land und Meer – eine weltgeschichtliche Betrachtung. Stuttgart.
[6] Similarly, travellers in Scandinavia have the right to camp on private property for a day or two as long as they move on after that period (referred to as ”Allemannsrätt” in Swedish, i.e. “Everyman’s Right”).
[7] Stein B. (2006). In Class Warfare, Guess Which Class Is Winning. The New York Times. URL: https://www.nytimes.com/2006/11/26/business/yourmoney/26every.html
[8] Dalio R. (2018). Principles for Navigating Big Debt Crises. Bridgeport.
[9] Max Otte M. (2018). Oswald Spengler und der moderne Finanzkapitalismus. In: Engels D., Otte M., Thondl M. (2018). Der lange Schatten Oswald Spengler — 100 Jahre Untergang des Abendlandes, Lüdinghausen, Berlin.
[10] Fuentes-Nieva R., Galasso N. (2014). Working for the Few. Political capture and economic inequality. Oxfam. URL: https://www.oxfam.org/en/research/working-few
* Translated with the kind permission by the author from the original publication: Otte M. (2019). Auf dem Weg zu einer Rennaissance des kontinentaleuropäischen Wirtschaftsmodells? In: Engels D. et al. (2019). Renovatio Europae. Manuscriptum. URL: https://antaios.de/buecher-anderer-verlage/manuscriptum/82728/renovatio-europae