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By Charles Wookey

Before we consider how faith can help, it’s worth focussing on the problem. Banking and investing in themselves are human goods, necessary to life in society. What is it that gets in the way of ethical banking and investing? We know some of the causes: imbalance of power and asymmetry of information, cultures which incentivise high risk taking behaviour and focus on short term results, the unhappy combination of imprudent  borrowers and sometimes unscrupulous lenders; huge diversified financial organisations that are too complex to control; regulatory capture and  ineffective regulation of new financial products .

We can all add to the list. There are many important factors and a lot of them were in play in the financial crisis.  So one approach is to take a tactical approach and look at these one by one. But the Catholic theological tradition invites us first of all to take a step back, and to take  a systemic view.

It help us to bring to such a perspective  certain ideas founded on Biblical teaching.  Catholic social teaching (as it is called ) seeks to apply the essence of Christian moral and spiritual teaching to life in society, including the world of business and finance.

The twin pillars on which this teaching is founded are human dignity, and the common good.  The inalienable human dignity possessed by each person is rooted for all Abrahamic faiths in the book of Genesis where we read that humanity –  male and female  – is created in the image and likeness of God.  The second key concept – the common good  – arises from this. It is an emergent property which arises through human relationships and institutions. It is emergent because, like the family as its examplar, it is brought into being only through the quality of human relationships of mutual commitment.  We can only create common goods together. No-one can do it alone. So the pursuit of the common good is the search for those social conditions necessary to human flourishing and for the dignity of all to be respected. The common good is not an addition sum of the greatest good, which might be maximised even if some have nothing. It is more like a multiplication sum in which the total is zero if any one term is zero. So we cannot hope to attain the true common good unless the needs of all are taken into account.

Within the theological perspective of creation and eternity, it therefore offers a world view, a clear direction of travel and an overarching purpose to life on this earth.  Social institutions including the state and the market are there to serve humanity not the other way round. There can be structures in society which embody particular goods and generate wider social goods, and there can be structures of sin –  such as endemic corruption –  which do the opposite, and make it extremely difficult even for the best people to live well in service to others.

Hence starting with the systemic. Within this world view the market economy has a clear purpose. It is to promote, foster and serve  the common good of all. How? By enabling people to have reasonable access to a reasonable standard of living through gainful employment; by fostering innovation that advances civilisation and addresses needs; by avoiding exploitative action; by creating and sustaining profitable businesses which have a clear purpose to provide goods that are truly good and services that truly serve.

Within such a view of the market economy as a whole, Catholic social teaching would claim that there is an important and distinct social purpose to the financial sector. This is to seek to apply the savings of people through financial intermediation to productive investments that serve the long term common good of society.

It is obvious that such a script is not exactly how business has often functioned, and in particular the finance sector over the last 20-30 years.  Very often the only two questions asked were: is it legal, and is it profitable. Such an approach, taken to extremes as a number of financial leaders wrote in the FT in 2010 “legitimates exploitation and in the end undermines the very basis of trust in the market on which all profitable activity depends”.

The breakdown of trust between the business and society, which has been and remains so acute in the financial sector, has as its root the suspicion that businesses are basically exploitative of people and society, and do not really serve either.

At this point many will say the answer has to be law and regulation. But whilst clearly vitally necessary, these can never be the whole answer. Regulation can set a minimum standard. But there is no technical fix or regulation which will deliver the good we seek without human commitment to the good. Gandhi used to speak disparagingly of “dreaming of systems so perfect that no one would need to be good”.  We need to bring together the moral resources of society to the enterprise of business and the market, because business and society are interdependent.

This is not easy,  it requires the engagement of the whole of society because the market cannot create the values on which it depends.  This interdependence becomes clear when we ask: what is the business for? Why does it exist? What story does it tell? The licence to operate given by society depends in the end on any business being able to give an account, beyond simply making money within the law, of why it is there at all, and how it is serving society. The key contribution of Catholic social teaching is to offer two criteria for any business purpose: respect for human dignity, and service to the common good. These are two core tests any good business should pass. If a business – any business  – is clear on its purpose, and that purpose is fundamentally a social good, then two things are needed of the people in the business – competence and character. The need for competence in any profitable business is self evident. But the formation of character over time is essential to building trusted relationships. People need to be able to bring their best values to work with them, and good businesses will draw on the moral resources of their people to nurture and strengthen a culture of genuine service and professionalism.

Many of the criticisms levelled against banks is that they simply forgot to put their customers first. But finance is special in that there is often an asymmetry of power. The rise of the professional is the social response to asymmetry of power in the case of  lawyers, doctors and accountants. But the strong ethic of professionalism embodied in the fiduciary duty for financial advisers to advise the client what is in their best interests even if it will not make you as much money – this has been lost and needs reclaiming.  And that requires, beyond necessary regulation,  the formation of character and the instilling of behaviour linked to a clear purpose which takes a long time to form – it is the culture of the business. Many banks today are speaking about values. What is needed is more openness about the scale of the challenge and that it will be a journey which takes years.

Pope Benedict in 2009 wrote that   “Above all, the intention to do good must not be considered incompatible with the effective capacity to produce goods. Financiers must rediscover the genuinely ethical foundation of their activity, so as not to abuse the sophisticated instruments which can serve to betray the interests of savers. Right intention, transparency, and the search for positive results are mutually compatible and must never be detached from one another.” (n.65)

In the aftermath of the financial crisis, and given also the wider evidence of distrust between business and society, many are seeking ways of rebuilding trust. One contribution to that is drawing on the tradition I have outlined. The ‘Blueprint for Better Business’ initiative starts from a framework based on virtue ethics and Catholic social teaching. It is an attempt to provide practical tools for businesses that genuinely seek to set a clear purpose and pursue profitable activities that are true to purpose.  Interfaith work already underway in dialogue with theologians from Judaism and Islam has demonstrated the compatibility of the framework with Jewish and Islamic scriptures and ethical traditions.  Furthermore, whilst faith enabled, having been launched last year by Archbishop Vincent Nichols, is it not faith led. It has already attracted the serious engagement of a number of major businesses because of its provenance and independence.

The contribution of the investment community to the furtherance of these objectives is vital. As Paul Polman of Unilever said at the Blueprint for Business launch conference last hear, you cannot have a business that succeeds in a society that fails. Investors need to think not only about delivering a financial return for future pensioners, but also about the kind of society in which those people will be living when they get their pension. Ethical investment therefore should not be a subset of investment but a constant criterion for all investors, and the development of metrics which seek to evaluate how far a business is genuinely true to purpose will become more important and potentially powerful in driving and promoting a healthier market economy at the service of the common good.

But this also brings us back to the systemic level. There are many who would argue that the vision presented here of a market economy in which profitable businesses anchored to a clear purpose to serve society attract patient capital cannot happen without structural change, especially to the way capital markets work. They contend that the structure of relationships between asset owners, fund managers and company directors in the UK, and the way capital markets work in practice, sets up distorting incentives which skews behaviour at each level, and the result is that the long term best interests of savers are not met. At our Blueprint for Better Business conference next month we will be exploring this complex and important question.

Charles Wookey was one of the speakers at a debate at the House of Lords on 24 September 2013, hosted by the Islamic Finance Council UK which included an address by Justin Welby, Archbishop of Canterbury and Rabbi Dr Naftali Brawer.