Advent 2009, Week Two, Day One

 Markets, governed by the impersonal laws of supply and demand, are the best rule for a sound economy – right? Well, not always. For one thing, it’s not a true reflection of reality. Economic activity also proceeds on the basis of relationships, personal as well as institutional. And, like markets, relationships have both beneficial and harmful effects on the economy. Some relationships can stifle competition or involve downright corruption. You only have to think of the widespread practice of insider trading which is as hard to prove as it is insidious. Or ‘crony capitalism’, for example, the corrupt relationships between property developers and bankers who took a stake in property development which have brought ruin to the economy in Ireland. Or the links between former Members of Parliament in Great Britain and civil servants with directorates and well-paid jobs in the private sector. Or the cozy brother-in-law non competitive contracts awarded by our own government.

 

Advent 2009 – A World In Waiting

Week Two – A New Covenant

Day One – No Covenant, No Prosperity

 

 

‘ “See, I am sending my messenger to prepare the

way before me, and the Lord whom you seek will

suddenly come to his temple. The messenger of

the covenant in whom you delight – indeed, he

is coming, says the Lord of hosts”. But who can

endure the day of his coming, and who can stand

when he appears?

For he is like a refiner’s fire and like fullers’ soap;

he will sit as a refiner and purifier of silver, and

he will purify the descendants of Levi and refine

them like gold and silver, until they present

offerings to the Lord in righteousness. Then

the offering of Judah and Jerusalem will be

pleasing to the Lord as in the days of old and

as in former years.’ Malachi 3

 

Markets, governed by the impersonal laws of supply and demand, are the best rule for a sound economy – right? Well, not always. For one thing, it’s not a true reflection of reality. Economic activity also proceeds on the basis of relationships, personal as well as institutional. And, like markets, relationships have both beneficial and harmful effects on the economy. Some relationships can stifle competition or involve downright corruption. You only have to think of the widespread practice of insider trading which is as hard to prove as it is insidious. Or ‘crony capitalism’, for example, the corrupt relationships between property developers and bankers who took a stake in property development which have brought ruin to the economy in Ireland. Or the links between former Members of Parliament in Great Britain and civil servants with directorates and well-paid jobs in the private sector. Or the cozy brother-in-law non competitive contracts awarded by our own government.

 

It was once the case in Great Britain that while ‘combinations’ of employers were thought perfectly normal, combinations of workers were outlawed. Adam Smith was one of the strongest critics of such a double standard, he wrote:

It is not, however, difficult to foresee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute, and force the other into a compliance with their terms. The masters, being fewer in number, can combine much more easily; and the law, besides, authorizes, or at least does not prohibit their combinations, while it prohibits those of the workmen. ‘We have no acts of Parliament against combining to lower the price of work; but many against combining to raise it. In all such disputes the masters can hold out much longer…We rarely hear, it has been said, of the combinations of masters, though frequently of those of workmen. But whoever imagines, upon this account, that masters rarely combine, is as ignorant of the world as of the subject. Masters are always and everywhere in a sort of tacit, but constant and uniform combination, not to raise the wages of labour above their actual rate…We seldom, indeed, hear of this combination, because it is the usual, and one may say, the natural state of things, which nobody ever hears of.’

 

Clearly, economic relationships are a fact of economic life. Therefore a critical account needs to be taken of their role, for good or ill, so as to ensure that they contribute to, rather than impede, economic efficiency, social justice and the common good. One perspective from which their effects can be judged is that of the covenant. It shows how economic relationships can play a constructive part in our common life, with beneficial effects not just on the economy but also on society and the environment.

 

One example is the role they play in the economies of developing countries. There the task is not so much to create relationships as to help shape, and re-shape, them. In the early stages of development all sorts of relationships are already at work – pre- and post- colonial elites, class structures, ethnic divisions, etc. The task is to encourage the right kind of economic relationships, and to contain the natural tendencies towards favoritism and cronyism. In developed economies, where relationships are often looser, they can be encouraged so as to play a particularly useful role in times of crisis as at present. For at such times the existing chain of lenders, producers, distributors, suppliers and consumers is put to the test. Anywhere along the line, people may be experiencing difficulty with orders, transport, payment etc. Healthy relationships can provide the essential basis for trust, which will make for greater readiness to extend credit, to offer advice and support, and to continue in operation.

 

Conversely, the weaker such relationships are, the more vulnerable a company may be when faced with the threat of bankruptcy or a takeover on bargain basement terms by a predator or competitor. The right kinds of economic relationships can also have beneficial effects on society and family life. That is the motive behind the economic work of the Christian-based Relationships Foundation, which explores economic relationships as part of its wider concern about relationships. Its vision includes promoting congruence of interest between shareholders, managers and the workforce. The commitment that grows out of this can then help to protect a firm’s rooted-ness in and contribution to the local communities. Fairness to local employees can help ensure a reasonable measure of security and can help lessen the need to get into debt, and this in turn can make for more stability in facility life. The Foundation is also involved in developing relational finance (regional banks, debt-free equity finance, reduction of government borrowing), in seeking parity in dealings between people who act as representatives of institutions whether public or private. It is currently working up a proposal for a new form of company structure which it calls the Relational Company.

 

Thirdly, the right kinds of economic relationships are important for the well-being of our planet. It is becoming ever clearer that the patterns of production and consumption in one country can affect the climate in ways which have the most profound effects on people in other countries across the world. We simply are all related, more closely than ever. And our economic system needs to express that reality.

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