Asia Sentinel

This post is not about the financial crisis – it’s about greed, one of the seven deadly sins in Catholicism. I was inspired by Barry Eichengreen’s comment in the last paragraph of his piece written for Project Syndicate: “We are not going to change human nature. We cannot make investors less greedy.” (If anyone is interested in an insightful analysis of the root causes for the current US financial crisis, Eichengreen’s article titled “Anatomy of a Crisis” is worth a read. He is Professor of Economics at the University of California, Berkeley.)

What is greed? According to the Wikipedia definition, “Greed denotes desire to acquire wealth or possessions beyond the needs of the individual, especially when this accumulation of possession denies others legitimate needs or access to those or other resources.” “Essential to the concept of greed is the awareness that the needs of others are denied.” “Greed also often involves using wealth to gain power over others, sometimes by denying others wealth or power.” “Greed typically entails acquiring material possessions at the expense of another person’s welfare.”

Diehard laissez-faire capitalists have always argued that greed, even unrestrained greed, is a necessary foundation for the capitalist system. But it seems time and again, periodic financial booms fed by reckless greed and inevitable subsequent busts in the US and around the world have shown that unrestrained greed, as opposed to “self-interest”, is indeed bad, very bad, for societies generally.

In Adam Smith’s first major work, “The Theory of Moral Sentiments”, he made it clear that “self-interest” is synonymous with the Stoic notion of “self-reliance”, which is quite different from selfishness or crass greed, according to analyst R. M. Morgan. Such “self-reliance” is at odds with actions that harm others, and limited by what can be achieved fairly. This Stoic notion of self-interest embodying moral constraint in mind and allied to self-reliance, works to mutual advantage and provides the moral foundation of the market economy.

It can be seen therefore that the literal meaning of “greed” is quite the antonym for “self interest”. The sad thing is that free-market disciples have often conflated the two and conclude that “greed”, in its literal sense, is good, which unfortunately is the last thing that Adam Smith would have wished to flourish.

The post-boomer generations, many of whom worked their way up to become high-flying financial professionals in the US and elsewhere in the last couple of decades, have been immersed in a culture that idolizes greed, as is epitomized in the famous line “Greed is – for lack of a better word – good. Greed is right. Greed works.” by Gordon Gekko in the 1987 film “Wall Street”. When greed becomes one’s “religion”, the concept of “self-interest” as perceived by Adam Smith is twisted so out of shape that it is indistinguishable from larceny.

Greed shows itself in many forms of human behavior in different societies.

The CEO of a leading financial institution who, in trying to drum up profits and thus his own bonus and his company’s stock price (which also benefits his options holding), and oblivious to probable investor losses, devises an elaborate scam whereby high-risk collateralized debt obligations are bought, split and mixed and then sold to trusting investors - (US). The directors of a milk-powder manufacturer who, out of crass greed to line the company’s pockets, decide to allow milk stations to add poison to milk powder to make it appear more nutritious, knowing full well that the melamine-laced products would harm or even kill babies - (China). The executives at the financial rating agencies who pass junk bonds as triple-A investments, in return for personal or other favors from client companies – (US). The bank managers who, in the hope of getting a salary raise or promotion, tell front-desk staff to persuade customers to buy what they know are high-risk securities but purposely evade disclosure of the risk factor – (Hong Kong). The heads of government regulatory agencies who, not wanting to jeopardize their symbiotic relationship with real estate developers, turn a blind eye on the rampant predatory lending practices in the home loan industry – (US).

Eichengreen’s assertion that greed is an innate and incorrigible human trait would seem to be a death sentence on any hope of salvation from self-inflicted doom in societies every now and then. But his point is that even though we cannot change human nature, we can still correct our government policies so as to try to prevent disasters from recurring in the future. One problem with this is that when any action is taken to change policies in response to a crisis, it will be post-mortem and the pain will already have been inflicted.

Perhaps what we really need in this age of unrestrained greed is to somehow find a way to rebuilding the moral foundation in our societies, even if it means, in part, putting in place more stringent, preventive regulations. While I keep an open mind on free-market principles, I do tend to agree with Eichengreen’s point that you cannot eliminate greed as it is human nature. The answer to this problem may lie in the saying of Martin Luther King Jr.: “Morality cannot be legislated, but behavior can be regulated. Judicial decrees may not change the heart, but they can restrain the heartless.”

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