Making Sense of Values in Economic and Social Systems - an Arab view
03 Nov 2007In my own time at university in the '60s one of the basic issues we dealt with was macroeconomic theories and their applicability to state policy for managing the economy. What were the pros and cons of each and how did theory compare to practice? This was the time of the Cold War between the East and the West and when the theories really could be seen in force, especially in Europe. Communism and capitalism were the political paradigms with their economic equivalents, at opposite ends of the economic spectrum, the central planned economy and the free market economy. Even if neither end of the spectrum was ever totally found in practice the difference was sufficient to stimulate academic and political debate as to which was superior.
Times have changed. The different theories might still be taught and discussed in universities as part of teaching students about economic analysis and its interpretation and how to assess its application as part of learning how to exercise their own judgment and make their own economic and political decisions and not blindly follow the "Pied Pipers" of the day. In the political world, however, there is little doubt that governments have swung away from central planning in favor of the market economy. The market economy is seen as one which gives more efficiency and better incentives to develop new goods (competition) and governments are there, not necessarily as providers but more as enablers and regulators. And this is true not only so in respect of the macroeconomic view, i.e. that of the states and governments, but also of the microeconomic view, i.e. that of the people, be it that of consumers, be it that of business. The current classic example is China, where the rejection of strict central economic planning in favor of the market economy has resulted in phenomenal growth - an example which is rapidly being followed by many other countries in the Arab region, Europe and elsewhere.
Of course no system is perfect and the market economy does have disadvantages, but where it is superior is its inherent recognition of the fundamental aspirations of the individual - self determination, free will and the pursuit of individual goals.
It is this strong desire for individuality which is the most important barrier to any kind of centrally planned economic approach. No state economy can foresee, plan and accordingly act to the individual wants of their people. Each CEO of a firm knows that he has to be very, very close to the market and its rapid changes. Markets consist of individuals with their own ambitions, wishes, needs and demands and unless these are satisfied business will be rapidly lost to competitors.
This, which is so easy to understand in respect of business, is the same when we examine the view of the individual toward the state and the services it provides. Government is an institution that is wanted and needed because it renders services that the individual needs and wants and reacts accordingly when these change.
Recognition of the role of the individual as such is very difficult to accomplish in a centralist approach with its absence of competitive markets. There are and always will be different, individual wishes and demands. In order to fulfill these, there will have to be different, individual suppliers. In total there will have to be a market, a market that brings together these people with there individual, different demands and those that supply them whether what is demanded and supplied, is a product or a service. The essence of the market economy is that "consumer sovereignty" is best served where there are many suppliers competing with each other.
In early microeconomic writings and teachings individuals (and businesses are themselves groups of individuals), were regarded as economic men with a sole objective of maximizing profit. We now recognize that this was a simplistic view and that very often it is a bundle of demands that are combined: price, quality, service, maintenance, warranty, reliability, responsibility etc. Those companies in the market that offer the best combination of all this will be the favorites and the winners.
A simplistic assessment might assume that the best companies can be depicted quite easily: those who show the highest profit or, more precisely, those with the highest return on capital invested. Therefore these companies must respond better to demand than their competitors. However, a more sophisticated assessment will raise doubt that companies nowadays really can be or should be looked at only from the viewpoint of how much profit or return on capital has been generated.
In the modern world "Economic Man" has been replaced by "Social Man." Success cannot and should not be from the view of owners/shareholders only. He will claim that other stakeholders are participants in the economic game and are affected by what the business does. This view recognizes that business is playing not only a part as market partner in offering the best product but also as society partner in caring for and serving the society in a broader sense. He might even bring forward the argument that the companies that show the highest profit might be those that show a very bad performance when looked at through the eyes of other stakeholders. Monopoly, environmental damages, employee exploitation, gender questions and tax evasion might be his keywords. And it might and sometimes, is argued very passionately that these excesses are the result of "free market economy."
The verdict might be that a free market economy is a market without any value or only with a value from the viewpoint of businesspeople. While it can be argued that centrally controlled economies were no better in this respect and were similarly anti-social, this is no defense against the historical development of business in different parts of the world where one has to state quite honestly that this harsh argument can not be laid aside. It describes situations that happened and obviously still do happen in some parts of the world. The "free market" has to be regulated either by itself or by the state.
There are states where obviously virtues and values existed or still exist that demonstrate the characteristics of a caring society, i.e. communities where people live together, share similar basic beliefs and values, people who are bound to more than just money, and people who basically care for each other and share similar views about human rights and obligations. These communities are "societies" in the true sense of the word, and consequently the use of the words "socio" and "social" in the sense of the Latin word which means "together" is very appropriate. It is evident that "Social" in this sense has no necessary direct relationship with the political terms "socialist" or "socialistic."
States should be societies in this easy, clear sense that they predominantly care for the people. States of this type will not allow companies to engage in excessive abuses and will set frameworks for business activities. States of this type will try to combine the inherent advantages of the "free market economy" with the values of society. They will establish a structure for the development of a "social market economy," an economy that encourages both economic growth and also the values of society.
I am currently deputy chairman of the United Nations Global Compact of which the UN secretary general is Chairman. This body was established in 2000 and works toward advancing 10 universal principles in the areas of human rights, labor, the environment and anti-corruption. The adoption of these principles by all businesses provides core values upon which a market economy should be based.
The paradigm of "social market economy" fits directly with the heritage of the virtues and values of our Arab society. I am confident that we will follow this path vigorously so that our states in this macro view and our companies in this micro view will be regarded as lighthouses of good social citizenship. That this sometimes needs considerable encouragement and effort is what I had to learn and still do learn whenever I work in my capacity as deputy chairman of the Global Compact. However, as all Arabs know, the more difficult the task the greater the satisfaction when it has been accomplished.
Talal Abu-Ghazaleh born on April 22, 1938, in Jaffa, is the chairman and founder of the Talal Abu-Ghazaleh Organization, the largest Arab global group of professional service firms in the fields of accounting, management consulting, intellectual property, technology transfer, training, education, legal services, information technology, recruitment, translation, publication and distribution.
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