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The Magis of incarnation in contemporary socioeconomic structures: The vote with the wallet

31 October 2013

Photo credits: Oxfam, thefinancialbrand.com

Leonardo Becchetti

The in-depth analysis of the res novae (new thing) of globally integrated socioeconomic systems leads us to identify the vote with the wallet as the lever which (in the logic of the Magis and of the preferential option for the poor) can help us to maximize our effectiveness in reconciling social and environmental issues, modifying unjust structures and moving toward the common good.

The vote with the wallet concerns our lifestyles but at the same time, is highly contagious and has a strong political impact. The keys of our chains are in our pockets. More work in the future needs to be done to make citizens aware of these great opportunities they have. This paper illustrates some of the most promising directions in which this can be done.

The analysis of the res novae

A consistent Ignatian process asks us to analyze the res novae of globalization, discern how the principles of the common good and preferential option for the poor can be applied in the new context and identify the Magis for our action, bearing in mind that our goal is not just proximity to the poor but an engagement to modify structures of injustice.1

An in-depth analysis of the current state of affairs identifies the existence of a wide share of the population working and living below the poverty threshold and is the main problem.2 The globalization of labour markets makes this people our neighbors, creating interdependence between their destiny and that of workers, with the same skills but with much higher wages, in rich countries.

The misery of the poor and the problem of environmental degradation are strictly intertwined as acknowledged by the international “climate justice” campaign: those who must care about daily survival cannot afford to have long term horizons and therefore, by definition, cannot care much about environmental sustainability. At the same time, they are those suffering the more serious consequences from environmental degradation. Indeed they are the first victims since they lack the financial resources needed to shelter them from natural calamities.

Keeping the social and environmental problem unified is essential to avoid the schizophrenic attitude of two opposite and mutually contradictory goals: consuming more to solve the problem of unemployment and poverty and consuming less to solve the problem of natural resources and climate change.

The unified strategy must be that of the creation of economic value in a socially and environmentally responsible way. The goal is the creation of a system moving toward the common good and one of the most effective instruments to move toward it, as we will argue in the next steps, is the vote with the wallet.

The causes of the distance from the common good

The problems we have today have three deep causes. The first is anthropological reductionism by which the dominant culture imposes a vision of the human being that limits its wellbeing to the dimensions of greed and acquisition. Second is corporate reductionism which narrows the goal of productive organizations to profit maximization (the golden calf of our times), thereby creating a dictatorship of shareholders whose needs are prioritized over those of the other stakeholders (customers, workers, subcontractors, local communities). Third is reductionism as defined by the values and goals of society.

From this last point, we have plenty of evidence on the decoupling between GDP growth and happiness (Easterlin paradox, a key concept in happiness economics). This well-analyzed phenomenon is leading social scientists and policymakers to redefine the “wealth of nations” as the stock of spiritual, ecological, cultural, and physical capital that a community living in a certain area can enjoy. This was recently done in Italy with the creation of the BES (Benessere Equo e Sostenible), the Equitable and Sustainable Wellbeing index.

Back to the first problem, we must acknowledge that anthropological reductionism reduces the richness of human beings, relational in essence since they have been created at the image of the Holy Trinity,3 to the mono-dimensionality of the homo economicus and of its univocal focus on myopic self-interest. This philosophical view neglects our relational richness and poses serious limits not only to the pursuit of the common good but also to the same social and economic fertility.

As the economic discipline today fully acknowledges with modern game theory, social and economic life is riddled with social dilemmas, that is, situations in which informational asymmetries and incomplete contracts are such that only a high level of trust, fraternity, and gift exchange may create humanly, socially and economically rich relationships. In the absence of such richness of virtues, we assist the progressive depletion of social capital that may ultimately lead to the stalemate of trust among individuals, financial intermediaries, and states.

In this respect the financial system is one of the socioeconomic environments more exposed to this risk for two main reasons. First, such a system is dominated by anonymous interactions that are more likely to be animated by reduced social sensitiveness and virtues. Second, the recurrence of crises produces a generalized fall of trust in financial intermediaries that also involves organisations not directly involved in specific scandals of financial difficulties.

From the Ptolemaic to the Copernican system

The discernment on the present state of affairs must lead us to acknowledge the need to move from the old Ptolemaic to a new Copernican system. The Ptolemaic system is full of contradictions. It conceives the world as populated by profit-maximizing companies and greedy consumption or income-maximizing individuals. Market failures in the model are expected to be successfully addressed by benevolent, all-mighty perfectly informed institutions having enough bargaining power, and not to be captured by those they have to regulate.

In other words, according to this reductionist perspective, the myopically self-interested attitude of individuals and companies could be reconciled with the common good through three “external” mechanisms. The first is through perfect competition that reconciles the pursuit of maximum profit with the interest of consumers. The second is the action of enlightened, perfectly informed, and “non-captured” institutions that address and correct negative social and environmental externalities that may arise from the action of profit-maximizing corporations. The third is through reputation that creates virtuous incentives that prevent firms in harming stakeholders, bearing in mind the future consequences of the consequent loss of reputation. Unfortunately, as we know, limits in the effectiveness of these three mechanisms are the rule more than the exception.

This model, which retains the inherent limit to err on the side of pessimism on the self-regarding attitudes of companies and individuals, and on the side of optimism on the other regarding attitudes of institutions, has fallen into pieces with globalization for at least two reasons. First, with the global integration of labour and product markets, companies have increased their power vis-à-vis institutions that still find it difficult to become global. Second, the global integration of labour markets creates competition between the “reservation army” of the extreme poor (with wages around US$ 1 per day) and the workers in high-income countries. This increases the bargaining power of companies toward workers and leads to a progressive reduction of the share of economic value that is accrued by labour vis-à-vis capital.

In this scenario, the preferential option of the poor is not just the goal of a minority of concerned individuals (who agree in principle with Ignatian spirituality) but becomes the urgent need for all those who want to defend the welfare achievements in high-income countries.

The Magis for the current action

The only relevant question nowadays therefore is: Are we creating mechanisms which produce a bottom-up convergence of a top-down convergence between rich workers and the world poor living at US$ 1 per day? And may these mechanisms be reconciled with environmental sustainability?

If we contemplate the current state of affairs with in the eyes of the Spirit, we become aware that God disseminated our path with providential mechanisms which may drive us to the common good, but only if we work responsibly to operate and activate them. Also, globalization is not in itself a negative phenomenon but a move toward a unique global community whose transition problems need to be solved.4

Conditional convergence is in action since poor countries grow at higher rates than poor ones.5 Painful migratory and capital movements produce some redistributive effects but at the cost of increasing intra-country inequalities. The process is extremely slow and at risk of a “race to the bottom” where multinationals, consistent with their profit maximization goal, continuously shift their productive activities to search for the country with the lowest social and environmental standards.

This is all the more so in the financial system where we have learned, especially in the recent past, that unregulated market forces do not produce, if left to themselves, an ideal competitive outcome. On the contrary, they inevitably tend to concentrate in the predominance of a few “too big to fail” actors which take too many risks, and in the anarchy of speculative high frequency trading.

A typical example is the market of derivative instruments where asymmetric information and problems of price discovery progressively led to an opaque and highly concentrated market where very few actors control the supply in the different segments. Domestic and international financial institutions are now perfectly aware that this is a problem that exposes us to new forms of (counterparty and interconnectedness) risk.

Vote with the wallet

Our discernment suggests that we however have a lever to change the world. This lever is the vote with the wallet.6 With this expression, we intend to take the opportunity that each one of us has, to award the top companies in social and environmental sustainability when we make our everyday consumption and saving choices.

The vote with the wallet has the dual quality of being foundational (it starts from our lifestyles and our personal involvement and conversion) and highly contagious and having a strong political impact.7 It has been demonstrated that the optimal response of profit-maximizing corporations to the emergence of the vote with the wallet (with ethically-concerned consumers buying products from ethical corporate pioneers) is partial imitation.

An interesting case of this is the evolution of the banana market in the United Kingdom where fair trade8 bananas (bananas produced in value chains with high social and environmental standards) started conquering small market shares. The reaction of the main large distribution chains (Tesco and Sainsbury) was partial imitation, that is 100% conversion of only one of the products sold (bananas) to fair trade. This move, in turn, led a multinational such as Chiquita to enforce the Rainforest Alliance program by which its plantations bridged the gap with fair trade standards. The move of Chiquita remains however a partial imitation since the company purchases only around 35% of their bananas from its own plantation and does not enforce the same standards when buying bananas from external suppliers.

This is why our Magis remains with the vote of the wallet for the ethical pioneers (fair trade, ethical banks, ethical investment funds) that dedicate 100% of their action to social and environmental responsibility and is different from profit-maximizing pioneers who imitate only partially. The imitators’ reaction though must still be welcomed since it is exactly what the vote with the wallet intends to produce, and is one of the current positive responses, limited as it may be.

The vote with the wallet must be intended as a complement, not a substitute of traditional political action. It recognizes the institutions that try, with many difficulties, to become global and who lose bargaining powers against global corporations. The vote with the wallet will assist in restoring their dignity and reinforce their political action and capacity to move toward global governance.

A main strength of the vote with the wallet is that it is not about being pious or virtuous, and thus cannot be dismissed as idealistic and wishful. This is because citizens voting with their wallet are, on the one side, already engaged in wide-ranging generous actions that gratify themselves, and on the other side, are also pursuing to their long-term sustainability, that maybe described for some as self-interest.

By purchasing green products, they contribute to reduce negative environmental externalities that ultimately affect their health and life quality. By buying a socially responsible product, they influence the market in the direction of higher labour standards where they ultimately include themselves and their families, being part of the labour force.9

The vote with the wallet is a progress in the direction of incarnation. Incarnation is an apparent oxymoron by which two apparently mutually excusive concepts (God and the human being) are reconciled in the same person. And most of the efforts of Christian reflection throughout the centuries strived to avoid a new separation between the two. Ethical banks, fair trade, ethical investment funds also seem to be an oxymoron. But it is only with the vote with the wallet that we can demonstrate that this is not the case.

In the logic of incarnation, our goal is to compromise ourselves by incarnating our values in the actual life of the market, more than just proclaiming them abstractly in schools and churches and run the the risk of not having any impact on real life economic activities.10

Limits, conclusions and direction for future action

The main limits of the vote with the wallet are the following: i) it is a census vote in the sense that it is possible to vote only in proportion to one’s own purchasing power; ii) there is, as in many other economic fields, an informational asymmetry which limits the capacity of consumers to be informed about the true social and environmental quality of a product and of a company; iii) consumers need to be made conscious of the enormous power they have. If they do not learn to coordinate their action, the impact of the vote with the wallet will remain limited.

In response to these limitations, recent research and action are in the following directions:

Behind-the-brand campaigns such as those launched by Oxfam  provide the information infrastructure about social and environmental ratings to citizens, enabling them to enact voice and exit actions that may have a deep influence on company decisions. “There are no companies which are so big it can neglect to ignore their consumer” as the slogan of the Oxfam campaign says. And after a few months from its inception, more than 100,000 citizen actions moved three large multinationals to announce changes in their policies.

There is also the promotion of good practices of corporate pioneers such as fair trade and ethical banks. An important reference is the initiative of the Global Alliance for Banking on Values ) that aggregates efforts of the main ethical banks in the world and recently demonstrated their stronger capacity to serve customers and the common good.

The creation of stakeholder coalitions to develop culture and action in corporate social responsibility is another action. The next platform in Italy is an interesting example of unions, non-government organizations, and industry organizations working together to implement and promote socially responsible practices. Companies enter the platform with a valuation of their social and environmental responsibility and presenting a specific project. Citizens interact with posts and pre-test some of the company policies.

The development of mobs makes consumers aware of their power and an example is the emergence of carrot mobs in the United States and the cash mob campaigns  promoted by a large coalition of organizations in Italy.

Our task

We are at the eve of a new era in the evolution of socioeconomic structures. Many of us feel dominated by superior forces of the market. But the market is made up of demand and supply, and we are the demand. Hence we are at least one side of the market.

Individuals have so far walked hopping on just one leg, through the political vote. They are now slowly discovering the existence of a second fundamental leg (the vote with the wallet) to make economic democracy stronger. The task of our generation, and especially of women and men of Ignatian spirituality who are sensitive to the issue, is to achieve this goal.

For further information, Leonardo also has a synthesized presentation of the “vote with the wallet” concepts in the following TEDx speech.

Leonardo Becchetti

Leonardo Becchetti is the president of the Ethical Committee of BancaPopolareEtica, director of BeneComune, director of European Economics and Business Law graduate course at University of Tor Vergata. He is also a member of the Board of the Italian Economic Society. He obtained his MSc at the London School of Economics and his PhD at Oxford University. Leonardo is teaching economics at the University of Rome Tor Vergata and is the author of around 350 works covering public economics, world development from an economist’s perspective, international money, business ethics, and much more.

Leonardo believes in the world-changing potential of the bottom-up actions of citizens creating economic value in a socially and environmentally responsible way. He regularly blogs on La felicità sostenible  and can be reached through his email: [email protected]

Notes:

1. The service of faith and the promotion of justice must be kept united. Pope Benedict reminded us that the injustice that breeds poverty has “structural causes, which must be opposed, and that the source of this commitment can be found in the faith itself: the preferential option for the poor is implicit in the Christological faith in the God who became poor for us, so as to enrich us with his poverty.” (cf. 2 Cor 8.9). (35th Jesuit Congregation, point 6)

2. The US Bureau of Labour Statistics (2012) calculates in the year 2010 a gross hourly labour cost in the manufacturing sector of US$ 33.1 for Italy against US$ 1.9 in the Philippines. Comparable data for India are US$ 1.17 in 2007 and for China US$ 1.36 in 2010.

3. Relationships between human beings throughout history cannot but be enriched by reference to this divine model. In particular, in the light of the revealed mystery of the Trinity, we understand that true openness does not mean loss of individual identity but profound interpenetration. (Caritas in Veritate n. 54)

4. “Despite some of its structural elements, which should neither be denied nor exaggerated, globalization, a priori, is neither good nor bad. It will be what people make of it. We should not be its victims, but rather its protagonists, acting in the light of reason, guided by charity and truth. Blind opposition would be a mistaken and prejudiced attitude, incapable of recognizing the positive aspects of the process, with the consequent risk of missing the chance to take advantage of its many opportunities for development. The processes of globalization, suitably understood and directed, open up the unprecedented possibility of large-scale redistribution of wealth on a worldwide scale; if badly directed, however, they can lead to an increase in poverty and inequality, and could even trigger a global crisis.” (Caritas in Veritate n. 42)

5. If we extrapolate 2012 per capita incomes and rates of growth of Italy, Romania, and Albania, we may for instance observe that Romania (whose current standard of living is on average 40 percent of that in Italy) would catch up with Italy in 20 years, while Albania (whose current standard of living is on average 25 percent of that in Italy) in 40 years. Many more years would be needed for China and African countries (which are however growing at very high rates) to converge to Italian per capita GDP.

6. What is needed is an effective shift in mentality that can lead to the adoption of new lifestyles “in which the quest for truth, beauty, goodness and communion with others for the sake of common growth are the factors which determine consumer choices, savings and investments.” (Caritas in Veritate n. 51)

7. ..(C)itizens have become progressively more aware of the need to move ‘‘from the streets to the shop,’’ acknowledging that their bargaining power can be regained by using their wallet vote to affect shares of corporate consumption. A minority of engaged and concerned consumers is becoming increasingly aware that a wallet vote is more effective than a political vote, given that even very small changes in terms of sales and market share can have a powerful impact on corporations. This is because for these corporations, small shortfalls on their target sales or expected earnings can generate significant negative effects on their stock market value, or on the reputation and survival of their managers. In simpler terms, if only a few individuals change their political vote, nothing will happen, while if only one goes to his/her bank and says he/she wants to move his/her account to another bank for social and environmental reasons, the branch director will try to persuade him/her not to do so, because this decision will impact on his/her performance and bonus.” (Becchetti, 2012)

8. The International Federation for Alternative Trade (or IFAT, the main international umbrella of producers and fair trade organizations) defines fair trade criteria as considering the following: i) creating opportunities for economically disadvantaged producers; ii) transparency and accountability; iii) capacity building; iv) promoting fair trade; v) payment of a fair price; vi) gender equity; vii) working conditions (a healthy working environment) for producers. The participation of children, if any, does not adversely affect their wellbeing, security, educational requirements and need for play, and conforms to the UN Convention on the Rights of the Child, as well as the law and norms in the local context; viii) the environment; ix) trade relations (fair trade organizations trade with concern for the social, economic and environmental well-being of marginalized small producers, and do not maximise profit at their expense). They maintain long-term relationships based on solidarity, trust, and mutual respect that contribute to the promotion and growth of fair trade. Whenever possible, producers are assisted with access to pre-harvest or pre-production advance payment.

9. We do not need a strong dose of altruism to vote with the wallet, merely a form of enlightened or long-sighted self-interest. This is because purchasing products from firms which are at the vanguard of environmental sustainability means supporting innovation toward more environmentally responsible productive processes, or providing incentives for a reduction in environmental degradation and its harmful consequences which produce negative effects not just for future generations but also for the concerned consumers and investors themselves. In parallel, choosing a socially responsible product implies supporting those firms that are more efficient in reconciling the creation of economic value with the well-being of their workers: a goal which, in the end, is in the interest of concerned consumers who wish to maximize their surplus, but whose satisfaction is affected even more by the enjoyment of decent working conditions. This grassroots action has successfully triggered a reaction from corporations that have found it optimal to imitate partially the behaviour of socially responsible pioneers. (Becchetti, 2012)

10. One main objection to the vote-with-the-wallet approach is that it implicitly legitimates market deregulation and the downgrading of standard political action. The answer to this objection is that grassroots action originates from an awareness that this loss of power is already an ongoing factor, and that grassroots action is intended to be a complement to, and not a substitute for, standard institutional and political action. Indeed, the grassroots action of voting with the wallet may give new bargaining power to political action. Unless we rely on the isolated actions of charismatic and enlightened political leaders, the likelihood of success for political action largely depends on bottom-up support from society. Dr Robert Cooter’s (1998) well-known concept of an expressive law states that the effective enforcement and success of a legal rule depend on its consistency with the underlying social and moral norms of a society. Just as NGOs fighting the death penalty try to achieve their goal by convincing the majority of voters to be against it (and not just by trying to persuade political leaders), creating a consensus for social and environmental responsibility may significantly increase the possibility of success of political actions. (Becchetti, 2012)

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3 Responses to The Magis of incarnation in contemporary socioeconomic structures: The vote with the wallet

  1. Adelaida on 3 December 2013 at 9:56 pm

    Gracias, Leo.

  2. Ma. Rosario Pozo on 11 November 2013 at 10:41 am

    Thamk you Leonardo: I´m going to read carefully all your document. Next saturday november 16th. I have to replay the Frontier of Ecology in our National Assembly, CVX México. I think your words may help with the presentation, as some ways to contribute to ecology, aditional to the Walpole document.
    My regards.

  3. (Edel) Beatrice Churu on 6 November 2013 at 8:28 pm

    Thanks to the writer for breaking down the logic of the proposed revolution and putting it in the context of faith, human history and daily life. This makes it immediately relevant (and possible to act on) for us all.

    This article together with the TEDx lecture are both very enlightening. It invites to a paradigm shift. Even as the writer speaks of the vote with the wallet as a second leg to walk on, it is in fact the more powerful leg, and the one that matters more. A paradigm shift requires conviction to get on the bandwagon. for me the real challenge is that most of us want quick-fix solutions, but the vote with the wallet is a slow revolution, but still a revolution.

    Finally it is important as we grow in conviction that we share this thinking and way of acting in order more surely overcome the limitations so clearly and openly exposed.

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