What is the true meaning of the ethical economy?

There are I think a number of competing interpretations of the meaning of the concept and practice of the ethical economy.

One stresses the motivational aspect, where ethics is both a new demand by consumers and a new practice by business that demands ethical action and practices. Another, used I believe by my friend Adam Arvidsson in his upcoming book, is that the mainstay of value today depends on co-production of this value by the public, and in this sense, value is no longer ‘material’, but has an immaterial source in the sphere of values that are held by the public and consumers.

I would like to add a third interpretation, which has a historical dimension and see the ethical economy as part of a phase transition away from liberal capitalism.

Indeed, this may be easy to overlook but capitalism was also a moral and ethical revolution. One of the cultural factors leading to the capitalist transformation of the ethical economy, was born out of the revulsion by the cultural and intellectual elite, caused by the violent practices of the feudal and spiritual elite. Indeed, since the Reformation, a European civil war had been incessantly waged, in which righteous temporal and spiritual leaders, had claimed to possess the one and only divine truth, which had to be protected from heretics by the sword. In other words, a high moral claim was the justification for the bloodshed, born of a lack of self-reflexivity and the lack of recognition of the evil in one own’s soul. Hence, the idea that society would recognize that self-interest was in fact a driving human factor, and to base society and the economic system on this recognition, became more and more popular. However, the basic assumption of liberalism was that, given a basic rule set, this self-seeking behavior would nevertheless lead to a common good. This is of course also the basic idea of Adam Smith’s Invisible Hand. Business in that sense, was a sublimation of war. Power passed from the warrior class to the merchant class. Compared to the hypocritical righteousness of the previous feudal era, it may interpreted as some kind of moral and ethical progress.

Though this liberal conception had to compete with other mindsets, it became the over-riding justification of the new system which would prevail for 300 years. Neoliberalism, with Milton Friedman’s famous conviction that a corporation could only look to its profits and to nothing else, became the most recent and most extreme expression of that conviction.

I believe two fundamental developments have undermined this conviction.

The first reason is of course environmental. There is more and more evidence that the self-seeking behavior of for-profit corporations is actively destroying the biosphere, but also in the context that the very state apparatus which is supposed to keep business in check, is no longer able to do so, as it has itself become a market state. Weak nation states, themselves influenced by local business interests, find themselves powerless regarding globalized financial streams.

The second reason is I believe linked to the emergence of the internet and peer production, as the newfound ability to create value through voluntary self-aggregation. Substantial portions of humanity are discovering that ‘self-seeking rational man’ is but a fiction, or at least just one of the aspects of the human being. It is now possible to experience commoning and sharing on a substantially increased scale, and to create social artifacts that are not just mere alternatives, but often function better than for-profit alternatives. This not only undermines the liberal worldview, but also allows for self-aggregation by ethical affinity. The new ethical demands by citizens and consumers find an amplification chamber.

In the context of these two factors, what emerges is not just a demand for more voluntary ethical behavior, but something more serious and fundamental. What is being asked for is nothing less than an institutional revolution, at least as powerful as the one that led to the replacement of the feudal ethic.

Emergent phenomena l ike social entrepreneurship, fair trade, even though formulated as new business practices that are sometimes seen as liberal, also contain within themselves radical seeds of change.

For example, social entrepreneurships merely uses the corporate form for sustainability and funding, but clearly subsumes profit to a social goal. This is not capital accumulation. Fair trade as well, treats consumers and producers as partners, and though it is a market form, again subsumes profit to a higher social goal. This we should not forget, is anathema to liberalism.

What these new practices have in common, is not just that they are new ethical behaviors, but they are new institutional forms, which integrate alien motives in the profit machine. In these new practices, market practices are not regulated by the outside, say by public authorities or the regulatory mechanisms of the state, but their very form and structure integrates and internalizes the new demands.

Similarly, if we talk in this blog about commons-based trusts, we are advocating a form, the trust, which cannot accumulate capital and ignore social and environmental externalities, as for-profit forms must do by their very DNA, but the ‘capital’ held in trust, and received by nature or from previous generations, must be given back intact to the next generation. Again, the ethical goals here are integrated in the new form, they are no longer externalized.

This is why the ethical economy is not just a new form of capital, but also essentially a post-capitalist market practice, that reflects the emergent values of the successor civilization and a new political economy.

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