Karin Brouwers
Sabine de Bethune
Cindy Franssen
Brigitte Grouwels
Joris Poschet
Steven Vanackere
Peter Van Rompuy
Johan Verstreken
Keynote speech voor het symposium Finance and Ethics van de Nederlandse denktank Socires, de Duitse Konrad Adenauer Stiftung en de Europese werkgeversorganisatie Uniapac

Many thanks to Senator Terpstra, for his hospitality in this beautiful Senate Hall, and to President Van Gennip (dear Jos), for his kind introduction. I am very grateful that the Socires Foundation, the Konrad Adenauer Stiftung and UNIAPAC are presenting me with the opportunity to share some ideas about ethics and finance in the presence of such a distinguished audience.

Ladies and gentlemen, honorable guests,

Rational is the new honorable

I don’t know about you, but pronouncing the word honorable always triggers my memory: for me, it brings to mind the unforgettable, ironic words in the third act of William Shakespeare’s Julius Caesar, when Marc Antony says: “So are they all, all honorable men…”

Today, rational is the new honorable. Bewildered by the crisis that struck the banking world, we are inclined to paraphrase Marc Antony’s words and say, with a sense of amazement: “So are they all, all rational men…” (Yes… men. Considering that prudence is a feminine noun, it is of course quite unfortunate that finance and politics still remain overwhelmingly masculine today.)

Anyway… We search our souls for the reasons of the financial debacle in 2007-2008. We try to establish the circumstances of the crime scene: (1) a financial sector getting all too separated from real economics, (2) practically unrestrained leveraging and (3) a multiplication of complicated derivative financial products in (4) an extremely deregulated environment with a lack of strong, global and compliance-driven supervision. And we ask: “What were they thinking?”. We interrogate ourselves: “Where did this tremendous irrationality come from?”. Why? Because we all like to think of ourselves as rational.

We insist on finding out the reasons for what went wrong, in order for us not to make the same mistakes and see a repetition of the catastrophe. I submit that, in thinking this way, we are tackling the problem through a particular lens, i.e. the lens of rationality. By looking for reasons, it is Modernity, with its compelling focus on goal-instrumental action, that we invite on stage.
What kind of rationality? Max Weber’s view.

In my remarks, I will suggest that we take some distance from rationality, at least in the way Modernity has been framing it in all of our minds. A century ago, Max Weber wrote that instrumental rationality (Zweckrationalität) was taking over as the highest form of rational conduct. In his view this was happening to the detriment of the three other ideal types of rationality: (1) rational action in relation to values (Wertrationalität), (2) affective or emotional action, and (3) traditional action.

So do not worry. It is the last thing on my mind to plead for less rationality: I suppose we are all proud to be children of Enlightenment. Current times demand less – not more – dogmatic thinking. But I am convinced that a less economized rationality will give us more than a hint for some authentically new directions. That would be a rationality with a stronger focus on values, on emotions and even on tradition (or if you prefer: on the fruit of the shared human experience throughout history).

After all, let’s not forget that there is a very peculiar assumption at the core of the so-called rational choice theory. It presumes that the behavior of rational agents simply consists of always seeking maximization in the pursuit of their own material wealth. It presumes that the act which is not motivated opportunistically is to be judged as irrational. That view is problematic.

Irrationality or inspiration?

By the way, a large chunk of the recommendations to be found in the Gospel (e.g. Matthew’s full day's wage for those who were only hired at 3 o'clock in the afternoon) are downright irrational. Or could they be inspirational? Can’t they at least create greater awareness that it is not only pure economics that account for all of the choices of human beings? In Not just for the money. An economic theory of personal motivation, Swiss political economy professor Bruno Frey illustrates how narrow the rational choice paradigm is when it comes to human motivation.

I must say I have always found it somewhat puzzling that in economics and politics, the frequently used concept moral hazard is not defined as the risk that the behavior of the strongest and richest towards the weakest and poorest would not up to the highest moral standards. No, when economists or politicians speak about moral hazard, it is about making sure that nobody takes advantage of you. It is designed to guarantee that one’s solidarity is sufficiently anchored in the old Roman saying Do ut des: I give in order for you to give (back).

I know that the famous ethnologist Marcel Mauss defined the gift as deeply rooted in a game of reciprocity, but I suggest that civilization enters a new faze when brackets are being put around this reciprocity: I give – or I refrain from taking advantage of you – not because you are able and willing to reciprocate, but because you, as a human being, are worth it.

Real economics

Now, when it comes to justice and ethical behavior, let us also avoid the mistake of rushing towards an artificial (and all too absolute) distinction between the mechanics of the so-called real economy versus those of the financial world. I am not saying that the specificity of the financial crisis should not inspire us to develop specific remedies, but not if it is to entertain an illusion. The illusion that real economy is a balanced and fair process, only corrupted by the exaggeration of financial excesses.

It is too easy to just put Finance on the guilty bench, forgetting that – if there is a trial to be had – it is the whole of the economy that should be implicated. I give only three examples:

1. The capitalistic free market still fails to create a “just” market price, which fully integrates the societal cost of externalities (like pollution, loss of biodiversity, resources getting exhausted, ….) That is a problem of real economy.

2. Worldwide, there is a huge asymmetry in the sharing of the economic value chain. One illustration: the strongest European country exports almost twice as much coffee as all African countries combined, both in volume as in value (3,6 billion $ versus 2 billion $). That is a problem of real economy as well.

3. Abuse of economic power through monopolies or oligopolies, the injustice and violence that go hand in hand with the current resources grab on this planet, even food speculation, … All these plagues are also problems of real economy.

It is one of the paradoxes of today that it might be the financial world that could come up with some of the technical innovations that can help solving some of these real economy ethical problems.

Think for example of Carbon Credits. At Fairtrade Belgium we are examining these instruments. If we can prevent them from being used as an excuse or an alibi for further pollution and instead transform them into instruments guaranteeing fair funding for sustainable development, then they can indeed be part of the solution.

In my mind, the financial sector would attract the brightest and most engaged young people of today, if it would invest its efforts and creativity in developing new ideas to help tackle some of these challenges, since they are very often strongly related to problems of unfair pricing, resource curses, lack of public funding, credit crunches, …

What do these things have in common? They are all about finance and money. They deserve the attention of the brightest financial whiz kids, much more than all the time and intelligence spent to look for legal loopholes in regulations concerning derivatives and structured financial products of dubious added value.

Sense of purpose

Ladies and gentlemen, before I took up elected politics, I had the honor to lead the public transport company in my home town Brussels. At my arrival at the helm of this beautiful company with 6.000 employees, I asked the engineers what their job was. They answered: making sure that the busses, the tramway and the subway run smoothly, of course! I replied: don’t you think it is about making sure that the people living and working in Brussels arrive at their destination? Their first reaction was of course: yeah, but that’s the same! It took a while before they saw that this change of perspective – putting people at the center of our sense of purpose – resulted in a set of very important consequences.

Allow me to underscore my point with a quote of pope Francis in his apostolic exhortation Gaudium Evangelii. Commenting on the devastating hardship that came about in the aftermath of the crisis, he wrote : “One cause of this situation is found in our relationship with money, since we calmly accept its dominion over ourselves and our societies. The current financial crisis can make us overlook the fact that it originated in a profound human crisis: the denial of the primacy of the human person!” (Gaudium Evangelii, 55)

Return on equity

Today, in finance – and probably in a very important part of economic activity in general – the sole sense of purpose for businesses still seems to be the maximization of return on equity. Do not get me wrong: there is nothing wrong with aspiring for a decent return on your investment. But it is genuinely sad if that is the only bottom line.

The financial sector has an irreplaceable role to play in developing sound economies, especially (not exclusively) through intermediation, making sure that savings in parts of the economy are oriented towards sound investments elsewhere. Just to illustrate this: the lack of reliable credit is one of the main handicaps holding back developing countries. Access to credit and investment can be an engine of growth, lifting millions out of poverty in the developing world.

It is a noble vocation – I do not hesitate to use that word – to redistribute money and risks in the economy, so as to make sure that good ideas get proper funding and that human progress can take its course.

Once the banker loses sight of this sense of purpose, and starts thinking that he or she is only in business to please stock markets, there is something profoundly missing. And mind you, these are not only issues that present themselves in retail banking (which gets most of the attention in the ethics debate because of its public exposure), but also (and I might say: even more) in the wholesale and the investment banking business.


In the years leading up to the banking crisis, there was a quite generalized myopia, preventing people from seeing much further than the performance charts in the stock exchange. The aggravating circumstance was a blatant short-termism, an obsession with quarterly results, inspired by a very short-sighted incentive model, both for employees, executives and companies in general.

And today? Sometimes I feel that only the rush to the short term has really been problematized and dealt with – at least to some degree – but that the rest of the model is still the same.

Before I explain this, let me assure you that I am very much in favor of employee incentives, as long as they are transformed into instruments to encourage long-term and sustainable success. Yes, I am one of those rari nantes in politics who are absolutely not against bonuses (gosh, even for bankers!), as long as they do effectively reward sound and long-term decisions. This implies either patience on behalf of the beneficiary in collecting his or her bonus, or some kind of claw back schedule, recuperating bonuses if the decisions turned out to be not so wise.

I very much prefer the first approach, but I suppose the other one is considered to be a decent second best in our impatient times.

But that is not my point. I believe that enlarging the horizon in time – albeit an important step – is not enough. The instrumentalisation is still there. It is still about shareholders’ value, which is not the same as values.

Integrity can (and should) not be bought

I know that there is a strong thesis that ethical behavior is in the company’s best interest, notably because of the reputational cost of unethical behavior, and that some would like to install ethics as an instrument of competition.

This idea has given rise to what we might call (perhaps a little bit disparagingly) an ethics industry, with consultants and coaches, courses and seminars, trying to prove that a company that takes ethics seriously stands a better chance of making nice profits as well.

I am not even saying that this is not true, perhaps even more often than on occasion. Consumers have indeed become more demanding and vigilant, a negative NGO report can have an impressive detrimental effect on market shares, and no CEO can really afford to neglect the impact of ethical questions on the way the company is judged by its environment. Nor am I underestimating the enormous productivity gains that ethical standards and behavior can produce by diminishing the huge transaction costs of control and compliance administration. A lack of trust imposes a kind of a tax on all economic activity, like Francis Fukuyama said. So, yes, ethics can be profitable.

But – and this is my claim – there are two things fundamentally wrong with this.
First, ethics cannot be outsourced by the leadership of a company, not to the best consultant in the world, not to your excellent subordinates and surely not to a PR company. Integrity cannot be bought.

One cannot shift moral responsibility, because it is essentially also about leadership. I serve on a sustainability advisory board of a Belgian bank. It only functions well because both the CEO and the president of the Board are personally involved. And one cannot shift moral responsibility, because it has to be alive in each and every working place within the company. There is no such thing as small unethical choices. Ethics are contagious.

The second thing that is wrong with the idea of ethics as tool for prospering businesses is that ethics should not be instrumentalized, even when stretching the time scale to its utmost and being extremely patient in harvesting the much awaited sweet fruits of integrity. Why is that? Because there simply will be times when doing what’s right is going to cost money… and continue to cost money.

We should not forget that somewhat uncomfortable message of Immanuel Kant, i.e. that doing the right thing is about doing it for the sake of it being the good thing to do, and not for any other reason.

If integrity cannot be outsourced, and if it should not be instrumentalized, the question of course is: can it be regulated?

It is a very tough question, and I will go into that, but if regulation only creates a culture of formal compliance, forgetting about the two objections I just mentioned, than it is to be feared that the fundamental question concerning ethical behavior (Is it right?) will continue to be trumped by two other, rather practical questions (Is it legal? Is it profitable?).

Kant again

Immanuel Kant’s categorical imperative tells you to only act in a way whereby you can wish that your behavior should become a universal law for everybody. But that is not the same as what some people make of it: act in a way whereby you can see that your behavior corresponds with everybody else’s behavior. The law of the great numbers is not an ethical law.

Warren Buffet once said: “The five most dangerous words in business are ‘everyone else is doing it’. Not only are these words dangerous and bad business, they also provide for an ethical slippery slope.

Regulation, of course! Some drawbacks of regulation.

Let me now address the crucially important question of regulation. I will need to come back to the theme of morality at the end of my speech, but it would be foolish not to establish the fact that regulation is all-important in providing for minimal standards. These can ensure the indispensable trust in the sector that non-compliance with these standards will by no means give an competitive advantage to those who do not abide by the rules.

Still, I want to point out that there are some drawbacks.

First of course, there is the annoying red tape, and administrative complications. The transaction cost of compliance and enforcement is important and underestimated. This is not a very original thought and I will not go any further into that. Life would be easier if we all were angels, incapable of sinning.

But second, and I will elaborate on this, there is a real danger of an ethical substitution effect. Let me tell you about a field study by the Israel Institute of Technology in 1998, presented under the title: A fine is a Price. I think it was conducted in collaboration with the Dutch Tilburg University. In a group of day care centers for children, a monetary fine for late-coming parents was introduced. Indeed, parents picking up their children after closing time force personnel to stay late. Well, after the introduction of the fine, the number of late-coming parents… increased significantly!

The theory behind this is that parties evaluate this as a social contract being completed by establishing a scheme of fines: now they know what the price of such behavior is. They feel that the fine compensates for the bother that they provoke in the day care center. Now, they think it’s up to management over there to compensate the crew for having to work late, instead of feeling responsible personally.

Rodrik’s triangle

A third drawback on which I would like to share a few thoughts is the “Beggar thy neighbor”-dilemma: the problem of regulatory competition between nation-states.

The globalization and economic and financial liberalization has put tremendous pressure on the so-called Rijnlandmodel, the socially and ecologically corrected market economy. Because this model heavily relies on governments that are willing and able to impose these corrections.

Harvard Professor Dani Rodrik (The globalization Paradox), whom I had the pleasure to meet a few years ago, claims that between (1) economic globalization, (2) democracy and (3) the survival of national states, something is going to have to give: they cannot all three continue to exist.

I seriously doubt if the answer to our problems is to cut back on globalization, the first corner in Rodrik’s triangle. Protectionism and newly found (or perhaps never abandoned) mercantilism inevitably hurts progress for the poorest. Worldwide connectivity might be intimidating as previously local problems have today grown into global challenges of an olympic size. Yet, the idea of retrenching behind national borders is not only an illusion at this point in history, I am also convinced that it would be contrary to humankind’s vocation of realizing true universality.

So segmentation of the financial markets is not the way to achieve better results. Although there is an important caveat. Outside the European Union, most businesses and even public authorities finance their cash needs through capital markets in the first place, and only in subsidiary degree through financial institutions. In Europe, it is the other way around. Not taking that difference into account, would be an extremely naïve step on behalf of European politicians.

Then there is the second corner of Rodrik’s triangle. I am confident that nobody in this Senate Hall would like me to explore the possibility of compromising on democracy.

So let’s have a look at the third corner: our good old (not that old!) nation states. If they are there to stay – they might be more tenacious than expected – they will most certainly go through an important transformation process, that will severely impact our understanding of the word sovereignty. Like United States president Barack Obama said in a speech to the General assembly of the UN: “No country is big enough to solve today’s problems on its own, no country is that small that is not part of the solution.”

Tragedy of the Commons

The tragedy – one might call it a tragedy of the commons, a concept first de-scribed almost half a century ago, in 1968, by biologist Garrett Hardin – is that not one single actor, not one country is willing to make the sacrifices or to limit its behavior just for the sake of the common global good. The economic game theory explains how countries get caught up in a prisoner’s dilemma, based on a seemingly rational expectation process concerning the behavior of the other ‘partners in the game’.

This probably explains why there were almost not enough EU-countries willing to support German Finance minister Wolfgang Schauble’s proposal on the FTT, the financial transaction tax. In a lot of countries there is considerable hesitation to participate in the EU’s formula of enhanced cooperation (allowing some member states to proceed while others do not join) since most seem to think that FTT can only be a good idea if everybody goes along. That might be true, but waiting for everybody will most likely be pretty much like waiting for Godot.

The Pontifical Council for Justice and Peace produced an interesting document in 2011: “Towards reforming the international financial and monetary systems in the context of global public authority”. It proposes the creation of a world public Authority but also insists on the need for subsidiarity.

Solving free-rider problems will continue to be about international agreement, through which signatory States effectively bind themselves. Further progress in terms of accountability and stronger enforcement of freely accepted commitments is the most realistic way forward. Our planet needs a kind of “transactional sovereignty”, or “contractualization of sovereignties” if you wish.

European Union member countries are following an interesting hybrid path, combining intergovernmental cooperation and EU-integration. Several undertakings, like the creation of a banking union, assuring stricter coherence in economic and fiscal policy, the gradual improvement in the fight against tax evasion, … stand to prove that there is no such thing as a “one size fits all”-solution.


My final thought in this introductory speech goes exactly to the European integration process. After World War II the initial engine of the peace process – integrating economies and financial markets – seems to have completely taken over from the more value inspired project of a more united Europe. The engine became the project.

For some, the European Union is a market, rather than having a market. Needless to say I do not share this view.

But I am convinced that the European future will be constructed in an even more hybrid, asymmetrical and less linear way than we have considered up till now. Notwithstanding the understandable allergies against a “Europe à la carte”, I think it is unavoidable that different nations will find themselves at different levels of integration.

One can only hope that in the heart of this Europe, there will be enough room for Weber’s Wertrationalität. This has to do with how we educate our children, how we involve our civil society, how we respect the human sense of religion, how we cherish our intellectual, artistic, literary and philosophical community and how we define sound politics.

All of these things have to do with a sense of morality, character and the capacity to be critical of oneself. If we want to really live together, we best make these decisions together.

I thank you for your kind attention.

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